FX Daily: Low Volatility Prevails Across Currency Markets in Mid-August

11 August 2026 — Daily Currencies Ratings

USD: Realised Volatility Sinks

Perhaps unsurprisingly, realised FX volatility is declining in mid-August — a pattern consistent with the seasonal thin liquidity that typically accompanies peak summer holiday periods across Northern Hemisphere financial markets. The primary risk event on the horizon is the Federal Reserve's policy meeting on 16 September, where the market is pricing an exact 50% probability of a 25 basis point hike. Whether the Fed ultimately decides to raise rates will hinge on a handful of data releases preceding that meeting. Nevertheless, investors do not appear unnerved by the upcoming gathering and seem more inclined to pursue carry opportunities in high-yielding currencies, borrowing in lower-yielding currencies to capture interest rate differentials.

In the G10 space, the Norwegian krone has posted the strongest total returns this quarter. In emerging markets, three Latin American currencies rank among the top four performers. Both trends reflect the broader carry-friendly environment, where rate-hungry investors gravitate toward currencies offering higher yields.

Even if tomorrow's US July CPI release shifts market pricing toward or away from a September Fed hike, it is unlikely to significantly impact the carry trade.

One potential disruption lies in the bond market. Longer-dated US Treasury yields sit at the upper end of their recent ranges, and the technology sector is preparing substantial new issuance. Nvidia announced yesterday that it would partner with six investment houses to arrange $500 billion in debt financing for its customers — effectively a "buy now, pay later" model. A sell-off in the bond market likely remains one of the principal threats to the currently benign environment over the coming months.

For today, the US data focus centers on July existing home sales and the weekly ADP employment release. The ADP four-week moving average has declined to +18k, down from a peak near +38k in April. Any downside surprise could briefly weigh on the dollar, particularly following Friday's soft July payrolls report.

The Dollar Index (DXY) appears set to continue trading within a 99.50–100.00 range heading into tomorrow's CPI release.

Chris Turner

EUR: Gone Fishing

EUR/USD realised volatility continues to decline, with the one-year measure now at 5.8% — matching the low last seen in November 2024. As noted above, this low-volatility environment is unlikely to change in the near term, at least not until mid-September when central bankers worldwide return from their summer breaks.

ING published an article yesterday examining the dollar hedge ratios of European investors. The risk is that European investors in US assets are once again underhedged and may need to quickly raise their dollar hedge ratios if the dollar appears vulnerable again. Such adjustments can generate substantial dollar buying flows, potentially amplifying currency moves. This dynamic likely depends more on the November midterms than on Federal Reserve decisions.

EUR/USD is unlikely to trade much outside a 1.1515–1.1560 range today.

Chris Turner

AUD: RBA Holds Onto Hawkish Bias

The Reserve Bank of Australia left its policy rate unchanged at 4.35% today. Some observers argue that the RBA's added characterization of its policy as "somewhat restrictive" signals a reduced likelihood of future rate hikes. However, Governor Sandra Bullock struck a notably hawkish tone at the press conference, reminding the audience that the RBA views inflation risks as skewed to the upside and acknowledging that the board did discuss the possibility of a rate hike at today's meeting. This prompted short-dated Australian bond yields to reverse course sharply.

ING's team does not anticipate a further RBA rate hike this year, but from an FX perspective, it still expects AUD/USD to climb to 0.73 by year-end.

Chris Turner

CZK: Inflation Details in Focus as Hike Pricing Supports Koruna

The Czech Republic releases its final July inflation estimate today, which is expected to confirm the flash reading of 1.7%. Market attention will center on the detailed breakdown, particularly components closely monitored by the Czech National Bank (CNB). Core inflation is projected to have held at 2.8%, with an upside risk of 2.9%. The CNB will also examine what drove service price inflation up to 4.7% in July and whether imputed rents continue to show signs of deceleration.

Last week's CNB meeting suggested the board is comfortable with the current degree of monetary tightening, setting a high threshold for an additional hike. ING had expected the market to price out further tightening following the CNB meeting, but global market pressures have instead pushed Central and Eastern European pricing back toward additional hikes.

The Czech market continues to lead the EMEA region, with two hikes priced in. This reflects the view that the CNB is particularly sensitive to renewed energy price pressure following its June hike — a vulnerability shared across much of the CEE region, where economies remain net energy importers. ING does not expect those hikes to materialize, but the pricing itself provides some support for the koruna.

Having been bullish on EUR/CZK both before and after the last CNB meeting, ING now sees the pair peaking around current levels — slightly above 24.250 — with potential for some relief below that level today.

Frantisek Taborsky

Source: ING