FX Traders Bet on Calm Waters in Early 2026 as Policy Risks Fade

Currency volatility will keep fading into the new year, traders say, with the policy paths of major central banks looking clearly defined for the foreseeable future.

A gauge of one-month volatility in the Group-of-10 currencies slid this week to 5.81%, the lowest since 2022. One-month pound volatility has dropped to its weakest level since 2014, while the euro equivalent has fallen to levels last seen in July 2024.

“Currency drivers are becoming less idiosyncratic across the globe,” said Ben Ford , FX strategist at Macro Hive. That leaves markets pricing “very little near-term risk,” he said.

The Federal Reserve is preparing to further lower rates next year, with the Bank of England likely to follow. Riksbank , Norges Bank and the are seen sitting pat for an extended period. The — and possibly the European Central Bank — could be the outliers that tighten policy.

Hedge funds are only betting on volatility going up later in the year, after May and June, when the UK holds local elections and the Fed has its first meeting without Powell at the helm, according to FX traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.

Political uncertainty, uneven global growth prospects and the impact of AI on equity valuations may supply the trigger for volatility to return, Ford said.