Dealers bruised by surprise renminbi vol surge
Rush to re-hedge USD/CNH exotics left banks in grip of painful short gamma squeeze
As all eyes this month focused on the dramatic unwinding of a popular yen currency trade, a far more painful event for dealers’ foreign exchange options desks was taking place in China’s offshore renminbi (CNH) market.
The global unwinding of the yen carry trade, sparked by the Bank of Japan’s decision to raise interest rates, led to a resurgence in the currency and drove a sharp selloff in Japanese and US equity markets last week. But it also forced a sharp appreciation in CNH, likely leading
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