In the build up to the next week s crucial Federal Reserve and Bank of Japan policy decisions, Bloomberg currency traders are preparing for the biggest price swings in months.
The dollar-yen was the most volatile, with the implied rate going up as high as 31.90, the highest since June 16 when the Fed hiked its benchmark rate by 75 basis points. After another expected hike by the Fed on Wednesday, traders are watching if the BOJ will maintain rock-bottom interest rates.
David Forrester, senior FX strategist at Credit Agricole CIB in Hong Kong, said overnight implied volatility shows that the markets are increasingly nervous ahead of multiple central bank meetings in the coming two days. The surprise 100 basis point rate hike by the Riksbank yesterday added to market nerves. Over that period, the implied volatility level of the dollar indicates that there is a 73% probability spot will trade in a 141.13 -- 146.24 range. Overnight implied volatility in the euro-dollar and sterling-dollar surged as much as 14.65% and 17.84% respectively.