The unwinding of tariff trade positions is contributing to a decrease in market volatility, as traders recalibrate their expectations for less aggressive tariff implementation by the Trump administration. This shift is leading to a weaker U.S. dollar and lower U.S. yields, as the market anticipates reduced inflationary pressures and a less hawkish Federal Reserve stance. The initial uncertainty surrounding potential tariffs had driven demand for protection in currency markets, notably seen in high premiums on USD/CAD risk reversals. However, as the threat of immediate tariffs diminishes, these premiums are decreasing, reflecting a broader market adjustment.
The VIX, a key measure of market volatility, is reflecting this trend, with its current level at 15.06 as of 06:41 on January 24. This marks a slight increase from its last close of 15.02, yet it remains near its 52-week low of 14.96, indicating a general easing of volatility concerns. The market's cautious optimism is tempered by the potential for future tariff impositions, which continues to keep some volatility measures elevated.