Commerzbank analyst Thu Lan Nguyen warns that an unusually low FX volatility
regime, combined with markets pricing in aggressive future rate hikes, increases
the risk of sharp FX repricing if central bank tightening proves weaker than
expected. Nguyen says current low FX vol partly reflects clearer assessments of
the Iran conflict’s economic impact, but also indicates markets have priced in
few policy surprises, leaving currencies vulnerable to abrupt economic moves
or policy paths diverge from consensus.
