Here's one explanation as to why currency market volatility has dried up

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If you’ve been thinking that currency markets have been fairly dull of late, you’d be right.

Outside of a few wild movements in select emerging market currencies, along with the trials and tribulations of the Brexit saga on the British pound, not much is going on at all.

Here’s a quick snippet from a report released by Rodrigo Catril, Senior FX Strategist at the National Australia Bank, that underlines just how dull things have been in recent weeks.

One of the big takeaways from the past few days has been the broad decline in volatility across markets particularly in FX land where major FX volatility indices such the J.P. Morgan and Deutsche Bank measures have drifted down to levels not seen since late 2014. This has occurred in spite of the major risk events in the calendar this week such as the ECB, Fed, RBA’s Debelle and Brexit.

The dovish shift in policy by major central banks has been one factor at play while signs that policy stimulus are starting to have a positive effect — particularly in China — have also play their part. Kicking the Brexit can down the road means a potential macro risk has been delayed yet again while the never ending, but still positive, US-China trade talks have also played into the low environment.

So in Catril’s opinion, there are several factors that have contributed to volatility drying up, none least the dovish tilt that began with the US Federal Reserve in January this year.

Outside of an unexpected Black swan-type event, one suspects that when volatility eventually returns, it will likely require a change in the factors mentioned above.

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