New lows in FX volatility prompt funds to retreat from options

declining market

A steady fall in volatility in the foreign exchange market this year as a result of widespread central bank intervention and ongoing eurozone uncertainty has led to a sharp decline in hedge fund and corporate demand for FX options, according to senior traders.

One-year implied volatility on EUR/USD was at 14.89% on January 3 and has fallen steadily since, dipping to a low of 9.70% on October 11, according to data from Citi. As volatility has fallen, hedge funds have stepped back from the options

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