Tokyo: Volatility has reawakened in the $5.1 trillion (Dh18.7 trillion) foreign-exchange market, as traders start to imagine life without ultra-easy monetary policy.

The impact is greatest in the currencies with most at stake from an end to years where stimulus only got more generous — the so-called high yielders. A gauge of expected swings in emerging-market currencies has surged above an equivalent measure for developed markets by the most since May. European Central Bank President Mario Draghi this month downplayed the need for an expansion of quantitative easing, while speculation has grown that the Bank of Japan could scale back longer-term bond purchases. Traders see better-than-even odds of higher US interest rates by year-end.

“The risk-on sentiment and hunt for yield that prevailed in the past few months, benefiting emerging-market assets, was based on a belief that central banks were going to provide more stimulus as the Fed stands pat,” said Khoon Goh, the head of regional research at Australia & New Zealand Banking Group Ltd in Singapore. “There has been a reassessment by the markets about how much more stimulus may be forthcoming. The pullback in flows into emerging markets is leading to currency weakness.”

Rand, peso

The South African rand and Mexican peso have been the worst-performing major currencies over the past month, with declines of at least 6.5 per cent against the greenback. Australia’s dollar has weakened 2.7 per cent, the most among developed-market peers.

The Aussie was little changed at 74.59 US cents as of 9:02am in London after dropping as much as 0.3 per cent following data showing employers unexpectedly cut jobs in August.

The yen was little changed at 102.43 per dollar. The euro fell 0.2 per cent to $1.1228.

A JPMorgan Chase & Co index of three-month emerging-market currency volatility has climbed to 10.9 per cent from 9.6 per cent a week ago. The gap to the equivalent Group-of-Seven gauge widened to half a percentage point for the first time since May 27 after being negative for most of that period.

Expectations for swings in the Australian dollar against the greenback climbed to 11.5 per cent, from 10.3 per cent on September 8. That was near the 19-month closing low of 10.1 per cent reached on August 8.

December FOMC

The Dec. 14 Federal Open Market Committee decision has only just entered the three-month horizon. Futures put the odds of action at the meeting at 52 per cent, from 36 per cent at the start of August, based on data compiled by Bloomberg. The odds for higher rates following the September 20-21 meeting are 20 per cent.

“The view that central banks are not inclined to be pressing their policy pedals even further to the metal is boosting currency volatility,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. “And that is showing up more in emerging markets than developed markets.”