By Tommy Wilkes
LONDON (Reuters) - As global stock markets head for one of their worst months in a decade and bond market volatility surges to more than four-month highs, the stampede out of risk has left the foreign exchange market largely unmoved.
Riskier currencies - from emerging markets or linked to commodity prices - have not suffered the sharp selloffs that would normally be expected when panicked investors rush for safety.
Similarly, in contrast to this year's "vol-mageddon" meltdown, the safe-haven yen <JPY=> hasn't caught as much of a bid as many expected. It's up 1.2 percent this month compared to a 2.3 percent surge in February.
This relatively benign reaction may be because, unlike in equities where signs of a peak in corporate earnings growth has sparked fears for the fate of a decade-long bull-market, currencies had already started adjusting to a world of slowing growth.
More importantly, it might also suggest that while investors need to adjust to a world of slower growth and tighter financial conditions as the U.S. Federal Reserve raises interest rates, they need not panic because there is no real evidence yet of a deeper downturn, analysts say.
Currency volatility, while rising, is no higher than it was in August and remains far below average levels between 2015 and 2017. Deutsche Bank (DE:DBKGn)'s currency volatility Index has increased to 7.99 from 7.66 on Oct. 1 .
Volatility on Wall Street (VIX) has jumped by far more, more than doubling since the start of October to within a whisker of eight-month highs.
U.S. bond price swings have leapt almost 50 percent, according to one measure (MERMOVE1M), and are at 4-1/2 month highs.
GRAPHIC: FX volatility - https://tmsnrt.rs/2OYmOlY
Stephen Gallo, BMO'S European currency strategy head, said one of the reasons for the relative calm in currencies was because investors were already so loaded up on the dollar.
They had slashed their holdings of riskier currencies in emerging markets during the August slide sparked by a meltdown in the Turkish lira.
"Positioning is already long dollars. We have already seen waves of EM FX selling," he said.
Even so the dollar, while inching toward a 2-1/2-month high versus its peers (DXY), is up a modest 1.5 percent in October.
GRAPHIC: Emerging market currencies - https://tmsnrt.rs/2OUax1W
The relative calm in currency markets may also reflect the view that the equity slide has been triggered primarily by a reassessment of U.S. growth expectations rather than something broader.
Goldman Sachs (NYSE:GS) analysts note that the currencies of countries with high exposure to U.S. demand - Canada <CAD=>, Colombia <COP=>, Israel <ILS=> and Mexico <MXN=> - have suffered heavily in October.
In contrast, currencies typically vulnerable to a downturn in sentiment like the Australian dollar <AUD=>, Indian rupee <INR=> or South African rand <ZAR=>, have held up relatively well.
"In other words, for FX, this equity drawdown has been more U.S. demand-centric than normal," they wrote.
"Typical safe havens such as yen and Swiss franc have also had a more muted response over the past month than predicted by historical sensitivities to the S&P Index."
GRAPHIC: Yen vs U.S. dollar - https://tmsnrt.rs/2CMnWlE