Hedging costs for foreign exchange swings across the world’s 10 most-traded currencies have dropped in recent weeks, causing market watchers to warn of investor complacency and to encourage the buying of protection against future volatility. Implied volatility – which measures the cost of buying options to protect against FX moves – across the ‘G10’ group of currencies has fallen on aggregate in recent weeks, implying that traders expect currencies to be calm in the months ahead. Deutsche Bank’s currency volatility index, which shows an average of 3-month implied volatility for the major currency pairs has fallen to its lowest since July 2020.
