Deutsche Bank reported that foreign exchange volatility has dropped sharply as November begins, marking a major shift in market sentiment. The bank noted that EUR/USD 12-month implied volatility has now completely reversed its post-election surge following President Trump’s victory a year ago.

According to the bank’s analysis, the market appears to have moved past the “Trump shock,” with several factors contributing to the calmer outlook — including easing trade tensions, stable fiscal policy, more predictable energy prices amid a quieter Middle East, and a temporary reduction in U.S.-China geopolitical risks. Deutsche Bank analysts admitted they are “struggling to come up with an answer” for what could trigger the next major market shock.

Looking ahead to 2026, the bank described a “very benign” global macroeconomic backdrop, as nearly all major central banks — except the Bank of Japan — have cut rates this year. At the same time, global fiscal policy has loosened, with exceptions such as the U.K. and France. The U.S. economy’s resilience has exceeded expectations, helped by AI-driven capital spending that has offset the effects of tariffs and immigration shifts.

Deutsche Bank added that most developed central banks are now in or nearing “long pauses” in their rate cycles, though it warned that the Federal Reserve and Bank of Japan still face “very murky” outlooks due to increasing political influence. These dynamics, the report said, have fueled a “relentless decline in FX volatility,” supporting continued strength in carry trades.

The bank also questioned the ongoing “dollar exceptionalism” narrative, pointing out that European growth forecasts have improved alongside those in the United States. As a result, relative growth expectations have become “significantly narrower” than at the start of 2025. Deutsche Bank concluded that the “benign global growth environment is not consistent with a continued dollar rally.”

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