Even so, the variation was “far from crisis levels,” said BofA Strategies. Volatility remained lower compared to last year’s fines, when a surge in US demand pushed the eurodollar’s one-month implied volatility to the highest levels since early 2020.
While the dovish stance the Federal Reserve turned last week calmed markets following the collapse of Silicon Valley Bank and UBS Group AG’s takeover of Credit Suisse AG, there is a risk that volatility could rise again in the coming months, particularly if inflation remains high, BofA strategists Michalis Rousakis and Howard Du wrote in a note.
“The lagged effect of the bank credit tightening has not fully kicked in yet and the business cycle is likely entering a contractionary phase for growth,” he said.
Spreads between the bid and ask prices of all major currencies widened this month. This had limited impact on price fluctuations, BofA argued, as its measure of option volumes in mid-month was well below levels seen in late September, when the dollar rallied after the UK’s mini-budget. and when it was supported by a leaning Fed.