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Euro short-term implied volatility jumps to 5-year high

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The cost of hedging against sharp swings in the euro against the dollar over the next week jumped to its highest in over five years on Monday, as Greece flirted with default and a possible exit from the eurozone.

[LONDON] The cost of hedging against sharp swings in the euro against the dollar over the next week jumped to its highest in over five years on Monday, as Greece flirted with default and a possible exit from the eurozone.

The one-week euro/dollar implied volatility rose to around 21.75 per cent, its highest since May 2010, with the option factoring in Sunday's Greek referendum, Reuters data showed.

The one-month implied volatility rose to around 14 per cent , its highest since late 2011, with investors buying options that were skewed towards more euro weakness.

Greek Prime Minister Alexis Tsipras shocked European officials by calling for a referendum to be held on July 5 to ask voters to decide whether to accept the bailout terms that his government opposes. Athens also closed banks and imposed capital controls to prevent a collapse of its banks as anxious investors pulled out their cash.

REUTERS

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