Derivs - FX

Falling expectations for Japanese inflation and the dovish turn at the US Federal Reserve sent the yen higher last week. This left USD/JPY at the lowest level since October 2014 going into this week, with only a slight retracement on Thursday bringing solace to Japanese exporters.

Foreign central banks will be allowed to repatriate their RMB holdings without restrictions if they have invested in China’s interbank bond market (CIBM) or traded in the onshore foreign exchange market, said the People’s Bank of China (PBoC) in two announcements released on April 14.

Several events have improved investor sentiment around the Turkish lira, but analysts warned that options are underpricing risks from the politicisation of the central bank and the weakened tourism outlook.

The Basel Committee has made an adjustment to the way it wants leverage ratios to be calculated, in a change that will lessen the capital burden on many banks that deal in derivatives.

Short term option implied volatility for the Brazilian real rose to more than 23%, the highest level in some weeks, as the country prepares for the possibility of a presidential impeachment vote by April 17.

Option premiums have been very high in sterling pairs for some time, but analysts are at odds over whether maturities before the United Kingdom's referendum on European Union membership are correctly priced.

Investments into emerging market equity exchange traded funds have slumped this year, but this has left call structures and outperformance options looking cheap if Chinese capital outflows ease.

Monetary policy and declining oil prices caused unusual currency correlations in recent quarters, say bank analysts, but changes in sentiment around developed market currencies and the prospects for US inflation look set to send those measures back toward normal levels.

ICAP, the interdealer broker, has launched a daily index that measures the effective cost of funding for sterling government bonds.

The International Swaps and Derivatives Association has warned that European supervisory authorities’ decision not to give ground on one day margin collection in their rules for uncleared derivatives will pose big challenges and costs for the buyside, while the deadline to comply in general with the regulation has become a ‘sprint’.

The Bank of England has raised its countercyclical buffer in response to the UK’s looming European Union referendum, as it tries to ensure banks will continue to lend in the event of a ‘Brexit’ vote.

Analysts are touting five year break-evens and calls on correlated currencies to ride US inflation growth.