Euro to remain most volatile currency

Euro and yen volatility is seen rising in the coming month, according to calculations from the monthly Reuters foreign exchange poll, as the euro area debt crisis shows little signs of easing. Debate over the euro's credibility is set to continue and the single currency is calculated to be the most volatile of the three against the dollar for the 19th consecutive month, according to the July poll.
The poll implied monthly annualised volatility of 14.0 percent for the euro against the dollar in July, up from the 10.4 percent actual volatility seen in June. Yen volatility against the dollar is seen rising to 9.6 percent from the 8.0 percent last month while sterling volatility is seen falling to 9.0 percent from 10.9 percent in the previous month.
The euro and yen saw a rocky month in June with the euro hitting an 8-1/2 year low of 107.3 yen last week.
The euro slid a little from a seven-week high earlier on Tuesday, hitting $1.2478, but held above a four-year low of $1.1876 it sank to last month.
If strategists are to be believed, the rollercoaster ride for the euro does not end here. One of them saw it fall below parity in the 12 month horizon to $0.98.
"The current rebound is just purely corrective and is likely to run out of steam shortly," said Ian Stannard at BNP Paribas. BNP was the most accurate FX forecaster in the June poll.
Heightened risk aversion has seen strategists forecast a slower pace in the yen's depreciation against the dollar, with two thirds of strategists predicting it to trade below 90 yen in the one month horizon.
The pound was seen the least volatile among the major currencies in July. This month's poll was the first time in seven months where strategists as a group upgraded their sterling forecasts.
The conclusions are based on the standard deviation of forecasts in the July currency survey, coupled with the actual levels of one-month annualised volatility seen last month. Analysts say the divergence of forecasts in Reuters currency polls offers a leading indicator of exchange rate volatility in the following month.
Statistical analysis suggests that the more analysts' forecasts diverge for a currency pair, the higher the actual one-month annualised volatility is likely to be in that currency in the following month.