After months of relative calm, volatility is resurging in the $9.6 trillion global foreign exchange market, creating lucrative opportunities for traders. The US dollar fell to a four-year low last week, while the euro surged to a five-year high, marking the most significant swings in global currency markets since last April. Signals from the options market indicate this heightened volatility is expected to persist for months, contrasting sharply with the subdued trading that dominated the second half of 2025.

The surge in volatility stems largely from the unpredictability of policymaking. Factors ranging from Trump's threats against Greenland to confusion surrounding the Federal Reserve's policy direction are eroding market confidence in the US dollar. This intense fluctuation is creating profit opportunities for Wall Street, which can command higher trading costs from volatile prices. Traders widely believe the next round of frenzied activity is only a matter of time. Sagar Sambrani, a senior FX options trader at Nomura International in London, stated, "Under a Trump presidency, volatility can spike rapidly and tends to reverse course just as quickly. The market is either completely stagnant—as it has been for the past six months—or potentially chaotic, with multiple key levels being triggered."

Key price levels are being breached in rapid succession. Dollar weakness has pushed the British pound to its highest level since 2021, and the Swiss franc has reached its strongest point since 2015. The Japanese yen moved against the trend ahead of a crucial election, experiencing sharp swings after nearing a four-decade low.

Options betting on significant dollar volatility are now at their highest level since last April, when Trump's reciprocal tariff threats shook global markets. Recent turmoil in the precious metals market has also boosted future volatility measures for commodity-linked currencies like the Australian dollar and the Norwegian krone. These factors are driving renewed interest in G10 currency trading. Large corporations with foreign exchange exposure are likely rushing to protect their positions, while hedge fund activity aimed at profiting from the volatility has also become more active.

The dollar's role as a safe haven is faltering, and expectations of Trump's "weak dollar" policy are exacerbating the turbulence. The dollar is no longer a reliable hedge against declines in risk assets—traditionally it strengthens during difficult times—meaning investors must seek alternatives. The current correlation between dollar weakness and volatility has reached a record level, another signal that greater swings are imminent. Julian Weiss, Head of G10 FX Options Trading at Bank of America, commented, "We see more downside for the dollar, and we certainly expect more FX hedging. Gold-dollar was a more attractive trade than euro-dollar, but now there's pressure again for diversified allocations."

According to Crisil Coalition Greenwich, currency options revenue at the top 12 banks grew 30% last year, although this lagged behind the 50% annual growth rate for precious metals. Trump's apparent support for a weaker dollar represents a reversal of the typical US stance favoring a strong currency. After calling for more aggressive interest rate cuts from the Fed, his nomination of a new central bank chief now adds uncertainty to US monetary policy prospects.

Tim Brooks, Head of FX Options Trading at electronic market maker Optiver, noted, "For the first time since early last year, we are seeing themes emerge that have the potential to cause significant FX volatility." Optiver's average daily trading volume in January was 80% higher than in the second half of 2025. Data from the Depository Trust & Clearing Corporation showed the currency options market experienced its two busiest trading days on record last week, reflecting a surge in both hedging and speculative bets.

Eric Li, Global Head of FX Trading at UBS Group, said, "I am not surprised to see clients keen to have options positions again." He added that clients are particularly interested in betting on dollar weakness against the euro and the yen.

However, doubts remain about the sustainability of this increased trading volume and volatility. There have been previous instances where risk events sparked volatility, only for calm to return within months or even days. Tanvir Sandhu, Chief Global Derivatives Strategist at Bloomberg Intelligence, stated, "We've seen this before; sudden breakouts rarely last. Amid macro uncertainty, FX volatility could remain suppressed as confidence evaporates."

This year's revival in volatility comes after it hit its lowest level since early 2022 last December. Some attribute this to a structural shift in market dominance rather than macro factors. The rise of systematic strategies in hedge funds, which continuously sell volatility, has helped the market return to calm more quickly. Andreas Koenig, Global Head of FX at Amundi, Europe's largest asset manager, believes the currency market moves year-to-date indeed justify a slight rise in forward volatility measures. "Volatility was too low; it should be a bit higher," Koenig said.