At the TradeTech FX 2026 conference in Amsterdam, the persistent slump in currency volatility took center stage for a second straight year, dominating discussions among industry participants. Investors on hand described a market where sharp swings in bonds, crude oil, and geopolitical tensions still fail to generate sustained currency movement.

"We lament the long-term downtrend in currency volatility," said Harish Neelakandan, co-chief investment officer at systematic trend follower AlphaEngine Global Investment Solutions. "This is the hand we've been dealt. We just have to learn to live with it." For a market that moves a staggering $9.6 trillion daily, the absence of volatility is turning into a perennial headache for traders who rely on big moves to profit.

Yet this calmer environment is likely good news for asset managers and corporates looking to hedge their exposures. The event, held September 15-17 at the Mövenpick Hotel in Amsterdam, drew over 800 attendees, with more than 300 representing buy-side firms and corporate entities.

Central Bank Coordination Shapes the New Normal

Neelakandan noted that stronger coordination among central banks has helped curb currency swings, leaving geopolitical shocks to produce only brief volatility pulses. Unless this backdrop shifts fundamentally, traders are likely to keep treating these spikes as opportunities to sell volatility.

"What we are seeing is a 'nothing-will-happen' trade, where people just keep selling volatility," said Thomas Carreau, currency portfolio manager at CN Investment Division, which manages the Canadian National Railway pension plan. Carreau observed that even the yen's recent moves have been relatively muted compared to historical standards.

The yen has been a market focal point over recent months: it tumbled to a forty-year low, then surged following coordinated intervention by US and Japanese authorities. Even so, its volatility readings remain in the low end of historical ranges. In late July, the yen weakened past 160, approaching 164 per dollar - its weakest since 1986. On July 30, Japan's Ministry of Finance, followed by the US Treasury via the New York Fed on July 31, stepped in to sell dollars and buy yen. On August 3, Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent jointly confirmed this marked the first US-Japan coordinated yen purchase since 1998.

Japanese Finance Ministry data shows that between July 30 and August 26, the government deployed 15.4 trillion yen (approximately $96.4 billion) for market intervention - a record for monthly intervention. The intervention initially proved effective, with the yen rebounding from near 164 to 155.20 by August 3, but the boost failed to translate into sustained gains. By August 31, the yen had slipped back past 160, only to strengthen again to 152 on September 8, before closing at 156 against the dollar in New York trading that day. A nearly $100 billion coordinated intervention ultimately brought the currency back near its starting point.

Some market participants also attribute falling volatility to advances in electronic and algorithmic trading, while others warn that a lack of sharp price action could push market makers to exit due to thin profitability.

Carry Trades Continue to Dominate

Carreau added that carry trades - where investors borrow low-yielding currencies to buy higher-yielding assets - continue to perform well. He prefers structuring these trades dollar-neutral, given that President Trump's social media posts can still trigger intraday dollar fluctuations. It's a strategy that thrives in a low-volatility environment.

"Carry is king," he said. That assessment matches the broader FX landscape this year. Across asset classes, volatility has been surprisingly subdued, pushing investors into carry trades and giving this most enduring forex strategy its best run in decades. Data shows that the strategy recommended by strategists at firms like Citigroup - borrowing euros to buy a basket of Brazilian real, Colombian peso, and Turkish lira - gained roughly 18% by mid-July, the largest year-to-date advance since 2005.

The low-volatility regime is rewarding carry traders on a wider scale: early this year, JPMorgan's volatility index showed emerging market currencies trading with less fluctuation than G7 currencies for nearly 200 consecutive days - the longest streak since 2008.

Sell-side firms are also converting low volatility directly into strategy recommendations. In May, Deutsche Bank's FX strategy team led by George Saravelos advised traders to shift focus away from the dollar toward relative value in currency crosses. Wells Fargo analysts led by Alvaro Vivanco recommended buying the South African rand while selling the Mexican peso. JPMorgan strategists stated that holding long carry positions remains one of their highest-conviction FX strategies amid global growth absorbing higher energy costs.

Corporates Adapt to the Calm

Low volatility isn't bad news for everyone. It may also reflect a market that is liquid, efficient, and capable of absorbing shocks in a turbulent world. "The world may be unreliable, but the FX market is reliable," said Allan Guild, conference chairman and director at Hilltop Walk Consulting.

Companies are adjusting their playbooks accordingly. Georgios Velissariou, head of financial risk management in the treasury division at Hitachi Energy, said lower volatility makes options a more attractive way to hedge certain currency exposures. He was also a speaker at the conference.

Meanwhile, some banks are rethinking parts of their business in this environment. Karel Sanders, head of FX product management at Rand Merchant Bank, noted that dollar-rand volatility sits at twenty-year lows, forcing the South African bank to reconsider how it runs its options business. "Do we continue as a market maker in FX volatility, or do we transition to an agency model? We lean toward agency," he said.

Signs at the venue also showed traders hunting for action beyond traditional FX. At one booth, attendees drawn by Dutch stroopwafels voted on which currency pair would see the biggest move that day - silver versus the dollar won.

A Ticking Time Bomb?

Several events that should have roiled currency markets during the conference period failed to do so. On September 16, the Federal Reserve raised interest rates by 25 basis points, lifting the federal funds target range to 3.75%-4.00% - the first hike since July 2023. That day, the dollar index rose 0.70% to 100.33, the euro fell 0.67% against the dollar to 1.1464, the 10-year Treasury yield stood at 5.021%, the 30-year at 5.361%, and Brent crude held above $105. The next day, Treasury yields moved lower across the curve, with the 10-year falling 9.1 basis points to 4.934%, the dollar index settling at 100.248, the euro at 1.1475, and dollar-yen at 156.04.

In other words, a rate hike, a 10-year Treasury yield swinging around 5%, Brent crude hovering near the $100 mark, and ongoing Middle East conflict together moved euro-dollar less than 0.1% over two trading sessions.

The problem is that catalysts for volatility are not lacking. Public data shows the Fed's dot plot indicates 16 officials expect further rate increases in 2026. KKR projects additional hikes in December and again next March, followed by rates holding steady until early 2029. Diane Swonk, chief US economist at KPMG, believes this hike "won't be a one-off" and that the actual amount needed may exceed official estimates.

A market increasingly built on low volatility could find itself dangerously exposed when calm is disrupted. Some see little reason to prepare in advance. "The market is in a situation where we don't know what the next catalyst for an explosion will be, and no one has positioned for it, because if you're early, you're wrong," Carreau said.

Prolonged calm does carry risks. Harel Jacobson, deputy portfolio manager at hedge fund Capstone Investment Advisors, said lower volatility forces traders to build larger positions to generate the same returns, leaving portfolios with bigger exposure when rare sharp moves arrive. "Ultimately, you end up with a ticking time bomb sitting in your portfolio," Jacobson said. His fund routinely buys cheap hedges specifically designed to guard against unusually large market moves, pointing to last year's surge in the New Taiwan dollar as the type of event they aim to cover - on May 2 and May 5, 2025, the New Taiwan dollar appreciated 1.872 yuan against the US dollar across two sessions, a 6.21% gain, touching 29.59 per dollar intraday on May 5, its strongest in nearly three years. Reports indicate major Taiwanese insurers hold around $700 billion in overseas investments, with roughly $200 billion carrying no currency hedging at all.