Everywhere you look, volatility is drying up.
Price swings in the stock market have disappeared following the quick recovery off the March lows. One measure of expected volatility in the S&P 500 is hovering near the lowest levels seen over the past couple of years.
The same goes for currency markets, or foreign exchange (forex). Currency volatility across major pairs like the dollar, euro, and yen was recently testing the lowest levels seen over the past decade.
That’s important because currencies are the largest market on Earth. Nearly $9.6 trillion in currencies are traded every single day.
Forex trading underpins the entire global system of capital flows. Any sign of trouble in forex can spill over to stocks, bonds, and commodities.
And while it looks calm on the surface, there’s a growing disconnect between forex volatility and geopolitical uncertainty spiking around the world.
If forex volatility starts to reflect the realities facing the global economy, then prepare for your portfolio to feel the impact.
Global economic uncertainty is near its highest level ever, according to one index. That’s because a combustible mix of ingredients is coming together all at once.
Geopolitical tensions, rapid AI developments, ongoing trade wars, central bank uncertainty…it’s enough to leave anyone feeling uneasy.
That’s why the World Uncertainty Index (WUI) soared to the highest level ever seen. Here’s the chart below.
The WUI rose to its highest level ever into late 2025. While the index has pulled back slightly, it remains extremely elevated relative to its 36-year history.
As you can imagine, global uncertainty and currency volatility tend to track each other. More recently, currency volatility tracked the rise in the WUI into April 2025. That was the height of uncertainty around the trade war.
But since then, currency volatility has fallen off while the WUI has stayed elevated. That shows a major disconnect between calmness in forex markets and high uncertainty.
If currency swings catch up to the elevated levels of geopolitical and economic uncertainty, prepare for a spillover impact on everything from stocks to precious metals and beyond.
Volatility in currency markets can reverberate throughout the capital markets, especially when it hits the U.S. dollar and other major currency pairs. That’s because the U.S. dollar underpins the entire global forex and financial system.
Sharp swings in the dollar were seen during the S&P 500’s plunge during the trade war. Currencies were also behind a three-day 8% drop in the S&P back in 2024 when the yen carry trade took a hit.
Forex impacts more than just the stock market. U.S. Treasuries are the world’s premier safe-haven asset held by investors and countries all around the world. Treasuries are priced and traded in dollars.
Commodities, including oil, are mostly traded in dollars. Precious metals like gold and silver are sensitive to movements in the dollar as well.
That’s why currency volatility can show up in everything from stocks to bonds to commodities.
And I believe we’re on the cusp of another burst in forex volatility that will be driven by the dollar. To put it simply, the U.S. is on an unsustainable path when it comes to economic imbalances like debt levels and trade deficits.
Something is going to break in forex. And when it does, it will spell trouble for everything from stocks to bonds and precious metals.
But with the right approach, you can turn forex volatility into your own profit opportunity. Trading forex is relatively unknown to most investors, but it’s the largest market in the world.
I’ve traded currencies throughout my 40-plus-year trading career, starting back in the 1980s. In that time, I’ve traded over $500 billion worth of currencies and have seen everything that currencies have to offer.
That’s why I hosted an event to show you why the dollar is at a crossroads and how I trade currencies to my advantage. Simply go here to watch now.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
