Trade War Kills Currency Volatility and Flummoxes Analysts

Foreign-exchange traders are struggling to know which way to lean when it comes to betting on the escalating global trade war.

While the U.S. and China have been exchanging blows over tariffs in recent weeks, swings in major developed-market currencies have remained muted, and opinion is divided about what might constitute a haven if tensions escalate. Measures of realized volatility are close to the lows for the year and well below where they were during Italy’s recent political crisis. That may also be acting as a drag on option-implied volatility.