Currency market volatility has been hard to find this year

Reisig and Taylor/ABC via Getty ImagesLOST.
  • There wasn’t much volatility in currency markets in early 2019.
  • Expected volatility looking three months ahead fell to levels not seen since late 2014 in March.
  • The calmness largely reflects a dovish shift from major central banks this year, most notably the US Federal Reserve and European Central Bank.

If you think currency markets have been fairly dull so far in 2019, you’d be right.

Deutsche Bank’s Currency Volatility Index, a measure of implied volatility looking three months ahead, fell to the lowest level since late 2014 in March, driven lower by dovish tilt from major central banks, most notably from the US Federal Reserve and European Central Bank.

Renewed stimulus spending in China, helping to calm previously frayed investor concerns towards the world’s second-largest economy, is another factor that has likely contributed to the calm seen across most major currency pairs.

The chart below from Reuters, using data from Deutsche Bank, shows just how far expected volatility has fallen in recent weeks.


According to Reuters, expected volatility in the EUR/USD — the world’s most-traded currency pair — slumped to levels not seen since 2014 in the March quarter.

The EUR/USD trading range in the first three months of the year was less than four cents, less than half historic average of nine cents over a comparable period.

Like the EUR/USD, volatility in the USD/JPY — second on the most-traded currency pair list — was also very low, falling to levels seen only a handful of times over the past three decades.

Similar trends were also seen in other major currency pairs in early 2019, outside of the British pound and Turkish lira that were impacted by economic and political developments.

Reuters has more here.

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