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Have currency markets really been quiet, or is something else taking place?
Last updated 11 August 2026
If you’ve been watching the market over the past year or so, you could be forgiven for thinking currency movements have finally settled down. Volatility gauges have drifted to their lowest levels in years. Central bank decisions have become more predictable, and the global economy has proved resilient in the face of frequent shocks. Unfortunately, the reality isn’t quite that simple.
2025 and 2026 have proved both quiet and turbulent at the same time. Long spells of stable pricing have masked huge shocks and could foreshadow even larger movements to come.
What does ‘stable’ mean?
When most people think of currency volatility, they picture the day-to-day movements in the relative value of currency pairs. They might choose to track the price of the pound against euro using something like the chart below, which shows just how small the variance has been compared to historical averages.
In truth, gauging the stability of currency markets requires you to look at directional movement too. How much does an exchange rate move and does it stay there? Are there periods with sharp swings, before the market whipsaws back in a correction?
The US dollar is the best example of this, weakening by more than 10% in the space of six months and putting in its worst performance since 1973. A double-digit move in the world’s de facto reserve currency of choice is hardly a sign of a stable market, even if the headline movements may seem small.
GBP/EUR since 2025
Sudden shifts
While 2025-2026 has appeared stable, it’s hard to look past several significant shocks in that time. The most significant of these came in April of last year, when President Trump’s ‘Liberation Day’ tariff regime led to major repricing across currency markets.
This year, the US dollar’s fortunes have been flipped thanks to the war in the Middle East and the resulting energy crisis. At the same time, fears that the appointment of Kevin Warsh would dilute the Federal Reserve’s independence have largely fallen away.
From a headline level, the present era and its major players certainly feel more unpredictable and capricious than any in living memory. New threats and considerations seem to arise every day, decoupling the market from its traditional reliance on economic data
Why quiet doesn’t mean safe
In a strange way, the absence of volatility can sometimes be a precursor to larger moves. Part of that might be complacency. Once a specific narrative is accepted as truth, any new development that challenges that assessment can help unwind the entire edifice that supported stability.
At present, implied volatility across major currencies has moved towards the lower end of its historical range, creating a comparatively subdued trading environment. However, this should not be confused with an absence of currency risk. Sizeable directional exchange rate moves can still occur even when day-to-day volatility is low.
Over the past 25 years, the US dollar went on to move by more than 10% in the six months after the major FX volatility indexes hit distinct troughs. Something to bear in mind.
The implications for UK businesses
The currency landscape can change fast. For UK SMEs, the past few years shouldn’t be interpreted as an invitation to play it fast and loose with treasury management. In fact, the reverse is true.
At Smart Currency Business, we work with businesses to understand their foreign exchange exposures and develop currency risk management strategies aligned with their cash flows, budgets and commercial objectives. A structured approach can give finance teams greater visibility and certainty, while reducing reliance on trying to predict short-term currency movements.
Register with Smart Currency Business today or request a call back for a complimentary review of your FX exposure.
