HSBC - "The fall in FX volatility globally has taken it back to levels last seen in 2007, and to levels well below long term averages. This fall seems to reflect the impact that very loose monetary policies have had on interest rate differentials, and also the almost universal desire to avoid currency strength in a weak global demand environment. The current relative quiescence of the market faces a number of potential challenges over the next few months, and those considering protecting themselves against adverse FX moves in the options market may be well advised to utilise these rates. To some extent it would seem for the moment low volatility is here to stay. Nevertheless the risk reward tells us that although volatility could go a little lower it certainly can go a lot higher. In short these are good levels to enter the market if one is looking for protection.

(...) What could trigger a return to a more volatile environment? While there are many factors which could generate higher volatility, three likely candidates over the next few months are:
I.The US fiscal cliff
II. European sovereign debt problems
III. Chinese policy"