Forex: Euro, Pound and Franc Soar Against US Dollar. What Happened?

Frankfurt (Dec 29)  The US Dollar is trading sharply lower, falling as much as 0.4 percent on average against its leading counterparts. The Swiss Franc and the Euro are leading the way higher against the greenback, rising as much as 1.1 and 0.8 percent respectively. The British Pound is not far behind, adding as much 0.6 percent against the US unit.Curiously, gains in non-European FX majors are conspicuously more restrained.

A discrete catalyst for the move is not readily apparent. Regional haven flows may be a possible explanation however. If that is the case, the current dynamic may not have staying power once US financial markets come online and bargain-hunters enter the fray, looking to buy Dollars on the cheap with an eye toward continued “tapering” of Fed QE in 2014.

It is also worth noting that market liquidity conditions are probably extremely thin, with many traders off for the holidays and those at their desks probably unwilling to commit directionally so close to the turn of the calendar year. Lackluster liquidity can amplify moves that would have otherwise appeared more restrained, making for outsized volatility. That warns against interpreting the magnitude of today’s moves as indicative of lasting follow-through.