The Currency Exchange (NatWest Markets)
Where Has Market Volatility Gone?
The Currency Exchange (NatWest Markets)
•January 16, 2026•28 min
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The Currency Exchange (NatWest Markets)•Jan 16, 2026
Why It Matters
Understanding the current low‑volatility environment helps traders and investors gauge whether price movements are being suppressed or if genuine risk is fading. The discussion is timely as policymakers and market participants prepare for key UK data and anticipate the Fed’s next moves, which could reshape currency dynamics in the months ahead.
Key Takeaways
- •FX volatility stays low despite major policy and geopolitical events.
- •Sterling likely to stay range‑bound against euro, growth surprise needed.
- •UK labour, inflation, borrowing data could shift sterling direction.
- •Euro projected near 120‑123/USD, depends on dollar weakness.
- •Yen weakness driven by Japan election uncertainty and policy mix.
Pulse Analysis
The latest NatWest Currency Exchange episode underscores a puzzling calm in foreign‑exchange markets. Even as the Federal Reserve navigates policy debates and geopolitical headlines dominate headlines, overall FX volatility remains muted, keeping major currency pairs in tight ranges. Analysts attribute this to market participants waiting for a clear catalyst rather than reacting to every data point, resulting in a low‑volatility environment that defies expectations for 2026.
Sterling’s trajectory illustrates that patience is still required. Against the euro, the pound is expected to linger in a narrow band unless a surprise boost to UK growth materialises, a scenario that could attract capital given the nation’s current‑account pressures. Upcoming UK releases – labour market, inflation, and government borrowing – are flagged as potential triggers for a directional shift. Meanwhile, the euro is seen as an anti‑dollar play, with fair‑value estimates around 120‑123 per dollar, hinging on any weakening of the greenback.
On the dollar side, the market has largely shrugged off the recent inquiry into Fed Chair Powell, interpreting the bipartisan pushback as a vote of confidence in Fed independence. Benign U.S. CPI data and a resilient yet cooling labour market keep the narrative of future rate cuts alive, supporting a relatively strong dollar. In contrast, the yen remains under pressure as Japan’s looming early elections fuel fiscal‑monetary uncertainty, breaking the historic link between higher Japanese yields and yen strength. Without a decisive policy shift or intervention, the yen’s downside appears set to continue.
Episode Description
In this episode of Currency Exchange, host Brian Daingerfield and guest Paul Robson delve into the current state of foreign exchange markets. They discuss the recent strength of the pound against the euro, the implications of upcoming UK economic data, and the overall low volatility in FX markets despite significant geopolitical events. They also focus on the Federal Reserve's influence on the dollar, and how political events in Japan are affecting the yen.
Remember to hit subscribe so you can listen to the latest episodes in this series as soon as they're available and get our views on the big themes and events moving markets and shaping the economy.
This episode was recorded on 15 January 2026.
For any terms used please refer to this glossary https://www.natwest.com/corporates/insights/markets/glossary.html
Please view our full disclaimer here: https://www.natwest.com/corporates/disclaimer.html
Show Notes
In this episode of Currency Exchange, host Brian Daingerfield and guest Paul Robson delve into the current state of foreign exchange markets. They discuss the recent strength of the pound against the euro, the implications of upcoming UK economic data, and the overall low volatility in FX markets despite significant geopolitical events. They also focus on the Federal Reserve's influence on the dollar, and how political events in Japan are affecting the yen.
Remember to hit subscribe so you can listen to the latest episodes in this series as soon as they're available and get our views on the big themes and events moving markets and shaping the economy.
This episode was recorded on 15 January 2026.
For any terms used please refer to this glossary https://www.natwest.com/corporates/insights/markets/glossary.html
Please view our full disclaimer here: https://www.natwest.com/corporates/disclaimer.html
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