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Forex Flash: Euro-Sterling correlation has broken down - BBH

FXstreet.com (San Francisco) - Marc Chandler, BBH analyst stated in a recent report that in his view, the correlation between the euro and sterling has broken down. "On a 60-day and 90-day rolling basis, the correlation is the lowest since 2000 at 0.21 and 0.34 respectively." Chandler points that "rarely has the 60-day correlation fallen below 0.40 since the advent of the euro and rarely has the 90-day correlation fallen below 0.50."

Even in the EMU debt crisis times, "the 60-day correlation was fairly stable most of last year." Chandler comments that the breakdown started in January as the pound declined hard while the euro rose until early Feb. "The correlation spent February and March mostly between 0.25-0.30 correlation, before slipping in early April as sterling was carving out a bottom, while new pressures weighed on the euro," BBH analyst added.

"Initially the weaker correlation coincided with a jump in implied volatility," he said. "The benchmark 3-month implied vol jumped from 5.3% in early January to 9.5% by late February. It has been tending down March and early April to stand near 6.8% today, which represents nearly 2 1/2 month lows. "

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