Interpretation & Uses

How to read an FX volatility index without over-interpreting it.

What Rising Volatility Often Signals

• Greater uncertainty about macro outcomes (rates, inflation, growth)
• Event risk (central bank meetings, elections, CPI prints)
• Funding stress or unwind of crowded positioning
• Broader cross-asset risk-off conditions

Volatility Is Not Direction

A higher volatility index implies larger expected moves, but not whether EUR/USD goes up or down. Both outcomes can be consistent with higher volatility.

Compare Like-with-Like

Comparisons are most meaningful when the methodology and horizon match. A 1‑week implied-vol series should not be compared directly to a 3‑month realized-vol series as if they are the same “thing.”

Common Pitfalls

• Assuming stability: FX volatility is regime-dependent and can jump around event clusters.
• Ignoring liquidity: thin markets can create noisy readings.
• Forgetting correlation: basket volatility can be affected by how pairs co-move.