Implied forex volatility rises moderately, risk reversal leans toward bullish US dollar options

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智通财经2026/09/02 13:56

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Recently, implied volatility in the foreign exchange market has risen slightly, but actual volatility remains historically low. The market is weighing multiple factors such as the escalation of the Middle East situation, rising energy costs, and the strengthening of long-term bond yields, while the main exchange rates remain confined within their trading ranges.
The overnight implied volatility of the euro against the US dollar is only 5.5, with the breakeven point before Thursday's New York expiry at just 26 basis points, highlighting the current subdued actual volatility. Starting Thursday, overnight expiring options will cover Friday's non-farm payrolls report, and the September 11 inflation data will also fall within the one-week expiry window. Both may have a significant impact on the Federal Reserve's September meeting decision. If the data deviates greatly from expectations, forex volatility is likely to rise markedly.
Risk-reversal indicators generally tilt towards bullish US dollar options, while euro-dollar option flows are increasingly favoring downside protection. Recently, this is reflected in a near 1 billion euro euro-put/dollar-call trade expiring in mid-October with a strike price of 1.14. The one-week 25-delta risk reversal shows the premium for euro put options relative to calls rose to 0.6, and the one-month tenor also rose to 0.4, both above last week's neutral level, reflecting growing concerns about downside risk for the euro.
The premium for one-month, 25-delta put options for GBP/USD has risen from 0.1 recently to 0.5, and for the three-month tenor from 0.45 to 0.65, though these levels remain below the peak seen at the end of July. Dealers report that demand for directly buying GBP put options to hedge against a deep decline is not yet strong.
The US dollar versus Japanese yen is an exception. Yen call options are supported by intervention risks and expectations of a rate hike by the Bank of Japan. Implied volatility rises each time spot rates dip, reflecting the two-way risk characteristics of this currency pair rather than a simple US dollar strengthening.
Implied volatility for the Australian dollar versus the US dollar remains close to long-term lows, making long volatility strategies more attractive as a risk hedge in terms of returns.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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Implied forex volatility rises moderately, risk reversal leans toward bullish US dollar options

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