Forex Flash: Options logic teach that currency war does not mean booming volatility - Societe Generale

Sebastien Galy of Societe Generale note that the spectre of a currency war raises concern that FX markets will turn more volatile.

He feels that although large depreciations are certain to generate transitory spikes in realised volatility, whether they will have a durable impact on implied volatility is far less certain. He writes, “Vol curves should flatten when officials are more vocal, but that should not fuel a higher volatility regime. In a currency war context, going long butterflies is arguably a better strategy than going long vega.”