The S&P 500 index and the MSCI Asia-Pacific Index excluding Japan have both rallied more than 10 percent since early June, while shares in Europe have jumped around 15 percent.
A dose of caution, however, has entered markets as expectations were dampened by comments from St Louis Fed President James Bullard, who said last week current economic conditions in the U.S. were not bad enough for more easing.
Plus investors are awaiting a number of key events that are likely to set the tone for trading over the next few weeks. The U.S. Federal Reserve Chairman Ben Bernanke is due to make a speech at the Jackson Hole annual symposium on Friday, while the European Central Bank holds a policy meeting next week.
“We would say a 5 to 10 percent (stock market) correction is more likely,” said Standard Chartered’s Brice. “The risk is that we don’t get (Federal Reserve Chairman) Bernanke signalling something coming through and the ECB disappoints with the timing of any measures.”
Mitul Kotecha, Head of Global Currency Strategy at Credit Agricole, says that the rise in stock market volatility will also rub off on the currency markets.
“The rise in equity volatility suggests that the relative calm experienced over the summer may be ending. Markets are getting a bit more nervous…. This suggests there will be a bit more of a difficult and volatile period for currency markets,” Kotecha told CNBC’s “Capital Connection” on Tuesday.
Kotecha added that the increased uncertainty means the euro, which ran up to a seven-week high against the dollar last week, could now find itself struggling to push higher. He said the single currency was likely to be capped at $1.25.
- By CNBC's Dhara Ranasinghe