Central banks have already destroyed the government bond market with open market interventions so large they practically ARE the market in the case of Japan and increasingly Europe. This extreme intervention has to be influencing FX to an extent as well since it is so difficult in this day and age for any major economy to veer firmly in one direction without triggering policy response mirroring from others.
The Federal Reserve’s “U-Turn” has wrung out volatility from G7 FX like The Rock twisting a wet washcloth. Major pairs are experiencing sleepy price action reminiscent of 2017’s great equity market slumber. Risk appetite levels are trapped between slowing global growth and monetary policy countercyclical measures, also known as the “Fed Put” or “Central Bank Put.”
This low FX vol environment is likely to persist until the stalemate highlighted above is broken by shifting monetary policy divergences or broader policy framework modifications such as a rumored de facto increase in the Fed’s inflation target.