GBP: Currency Index & Volatility

Relative Currency Strength

Important and influential fundamental data started coming already in the very beginning of the period, namely on November 5. The currency index of the GBP climbed to hit its highest weekly value around 100.4 points in the night between Wednesday and Thursday, despite worse-than-expected UK services PMI data. The sector’s activity index fell to 56.2 points in October, underlying possible slowdown of country’s economy. Later, the currency started losing value and slipped below the baseline on Friday. It is worth pointing out that the decision of the Bank of England on interest rates did not have any considerable impact on the pound in terms of its performance. All in all, the currency closed the week with a marginal decrease of 0.13%.

The British currency traded in a more volatile environment during the November 5-11 time period compared to the previous report two weeks ago. In the first two days the currency gained value, while starting on Friday it dropped below the baseline. Over the five trading days the GDP Index decreased 0.13%. However, it remained among one of the best performing currencies year-on-year, along with the US dollar, as they rose 7.1% and 7.59%, respectively. Meanwhile, in a week’s time the pound surged against the Japanese yen, Euro and Swiss franc, gaining 1.23%, 0.13% and 0.08%, accordingly. The sharpest fall was posted against the Loonie by 1.05%.

Volatility

The fuelled activity of the pound due to meeting of the Bank of England’s Monetary Policy Committee on Thursday was clearly observed in the currency’s turbulence, causing the GBP Volatility Index to jump considerably. The same behaviour of the Pound could be observed on Friday, following the speech of BoE Governor Mark Carney. Nevertheless, the currency’s maximum volatility index stood below the market’s average at 2.32 points. Among currency pairs, the most noticeable volatility was posted by EUR/GBP and GBP/CHF crosses. Meanwhile, the average volatility during the reported period was slightly below the mean level for all currencies on the market.

The period can be considered as active in terms of volatility, as the vast part of the period was marked by uplifted turbulence of the British currency. The portion of elevated GBP volatility was slightly above that of the market. EUR/GBP and GBP/CAD were the only pound’s crosses with the parameter smaller than the market’s average of 29%, and with that posted the lowest elevated volatility portion of 26% and 15%, respectively. Concerning other currency pairs with the pound, GBP/JPY and GBP/SEK posted the highest elevated volatility indicators during the period at 41% and 40%.

Currency Significance

The gauge reached its maximum value of 0.55 in the beginning of the period, even though there were no significant changes in correlations between major currency pairs, except GBP/EUR with GBP/USD, where it jumped from 0.2 up to 0.7 in a short period of time. On the other hand, the minimum value of the GBP significance fell to 0.15 on Thursday, as the data from the Bank of England on the interest rate and asset purchase facility was published. The change was mainly caused by some components dropping below zero, including GBP/EUR and GBP/CAD, GBP/USD and GBP/CHF. The mean correlation, however, managed to rebound closer to the average level of the period due to the lack of other important fundamentals from the UK and the rest of the world.

Significance level of the Pound, which is calculated as an average correlation between different crosses of this currency, was rather balanced during the period, except for the first two trading days. On Wednesday, the correlation stayed around the 0.55 level, while a day later in dropped down to the period’s low at 0.15. However, the GBP composite managed to stabilize and close the week just below the mean level at 0.30. Radical changes throughout the period were caused by some components falling below the value of zero.