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G10 Currencies vs. VIX

  • We know that G10 currencies tend to react differently in periods of rising and falling volatility.
  • This chart shows the average monthly performance of the G9 currencies (vs. USD) when the VIX rises above 20 since January 1990 (VIX inception); the choice is arbitrary but a VIX higher than 20 has generally been defined as a 'high-volatility regime'.
  • As expected, the Yen is the best performer in periods of rising price volatility, with JPY averaging 45bps in monthly returns in the past 30 years.
  • The Swiss franc, also known as the 'alternative safe', has also reacted positively when VIX spikes, with CHF averaging 11.5bps in monthly returns.
  • Surprisingly, the British pound is the weakest currency in high-volatility regime, with GBP averaging -30bps in monthly returns; as a reminder, GBPUSD fell by 13.5% during the March 2020 panic to a low of 1.1412 when the VIX exploded.

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