As Michael Palin pointed out in Monty Python’s Spanish Inquisition sketch, “our chief weapon is surprise”. That sentiment could be applied to central banks, as they struggle to stimulate their economies and rouse inflation.
For years, the guardians of monetary policy were purveyors of the art of saying what they intended to do and doing so, in the name of transparency. But this year they have switched to the element of surprise so frequently that markets are adjusting to a climate of the unexpected as the norm.
Roger Hallam, chief investment officer for global currencies at JPMorgan Asset Management, says increased volatility reflects a better functioning market. “The market is responding normally,” he says. “Implied volatility in currency markets is up remarkably.”