Analysts at UBS AG believe that foreign-exchange rates will behave the next year in a very volatile manner. In their view, this will happen as the pace of the economic growth in the emerging markets and in the developed ones diverges, while the central banks use monetary stimulus measures to spur recoveries and the euro area keeps struggling to fight serious debt crisis. There is also high risk of policy-maker error in relation to interest rates, quantitative easing and fiscal tightening, notes UBS.

The specialists expect that annual exchange-rate price swings on some major currencies may double. In particular, the single currency’s trading range may widen from $1.1877-$1.4579 this year to $1.1-$1.5 in 2011. The greenback’s rate may travel from 70 to 100 yen, while in 2010 it traded between 80.22 and 94.99 yen.

As a result, UBS thinks that companies need to increase hedges against greater exchange rates fluctuation.

More info about FBS