While equity implied vols are compressed to record lows – what could possibly go wrong with unwinding a $4 trillion balance sheet? – it appears FX traders are a little less sanguine about the market's reaction to today's FOMC decision.
And more specifically, one-day volatility in euro-dollar options surged to the highest level for the day of a Federal Reverse monetary-policy decision this year, suggesting elevated expectations among investors.
As Bloomberg notes, the raised level of the gauge suggests traders see a good chance of the euro breaking out of its recent range should Chair Janet Yellen surprise the markets on the outlook for Fed policy.
The probability of another U.S. interest-rate increase by year-end is over 50 percent, according to the overnight indexed swap curve.
via http://ift.tt/2hhyM6y Tyler Durden