FX option implied volatility is currently experiencing a period of stagnation, sitting at long-term lows. This situation is primarily a result of subdued realized volatility, which has been confined within tight trading ranges. Despite this, there are emerging signs of increased activity, as a number of buyers are beginning to re-enter the market. In the near term, specifically in relation to next week's Jackson Hole symposium, buyers with shorter-dated expirations may become more active. This could be due to the anticipated volatility surrounding headlines and market reactions related to the Federal Reserve's policy decisions. The benchmark 1-month expiry implied volatility will notably factor in the outcomes of the upcoming September 17 Federal Reserve meeting, which could potentially enhance its risk-reward appeal for traders.

At present, the primary focus of implied volatility demand seems to be on the USD/JPY pair, especially following a significant drop from the mid-148s to the low-146s. This volatility shift has caused the curve to move away from one-year lows, with the benchmark 1-month expiry rising to 9.3 from 8.5 in just over a day, between Wednesday and Thursday. On the other hand, EUR/USD risk reversals continue to skew towards higher levels. However, they require either a fresh increase in spot prices or a resurgence in volatility to stop the ongoing decline in implied volatility. There is also a possibility of further losses being hard to come by for the 1-month expiry, which is edging close to long-term lows around the 7.0/6.8 mark. Considering the GBP/USD pair, sub-1-month expiry risk reversals may finally manage to achieve a minor topside strike premium. Still, there has been little urgency shown by traders to position themselves for a breakout beyond the recent high of 1.3787 or to test the 1.4000 option barriers. The current one-month implied volatility is at 6.75, aligning with the lows recorded in late July, which had not been matched since March. Meanwhile, AUD/USD options are grappling with new one-year lows, as the spot price continues to hover within familiar ranges above 0.6500 without significant volatility. The one-month implied volatility is closely watching the lows from July to March 2024, which are 7.6 and 7.25, with the latter figure not being recorded since 2020.

Unless spot prices succeed in decisively breaking out of their current trading ranges, FX option implied volatility is likely to remain low in comparison to the highs observed in early April. Nonetheless, any further declines in volatility may now be limited, due to proximity to long-term lows and the impending end of summer. It is important to note that without a new catalyst to drive market activity, overall demand and any significant gains may continue to be lackluster.