VIX supports the pound - Socgen
|Analysts at Societe Generale explained that the Fed is still sucking volatility out of the market It has become clear in recent years that globalised financial markets provide an international transmission mechanism for US monetary policy shocks, which in turn has given us the expression ‘risk-on, risk-off’ and increased correlation across markets in volatility, credit spreads, risk premia and so on.
Key Quotes:
"The London Business School’s Helene Rey, has published a fair amount on the subject which looks at empirical evidence that supports what those in the markets knew already. Her latest update, with Silvia Miranda-Agrippino is here. Two thoughts come to mind with regard to the FX market."
"The first is that the steady increase in correlation between measures of risk means that driving one down drives them all down. FX vol is high, relative to equity vol. The VIX is an anchor for EUR/USD vol, and increasingly, for GBP/USD vol, which in turn is supporting the pound."
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