The opinions expressed in this report are those of Macro Hive and are considered market commentary. They are not intended to act as investment recommendations. Full disclaimers are available at the end of this report.

  • The banking crisis has prompted dollar weakness and pared central bank expectations.
  • CME Group option data suggests investors are adding to bearish USD option structures. Investors are gravitating towards bullish EUR/USD 1.10 strikes.
  • The FX volatility curve using CME Group options data suggests investors remain in “fear” mode.

Fears of a banking crisis have dominated markets for the past few weeks. On the U.S. side, the failure of Silicon Valley Bank has brought attention to other weak regional banks. U.S. policymakers responded with various liquidity supports and deposit guarantees. Meanwhile, on the European side, investors lost confidence in Credit Suisse, which led to UBS acquiring it with the help of the Swiss National Bank (SNB). Time will tell whether these policy actions are enough to stop the crisis from growing. So far, markets appear to believe the worst is over.

Throughout this investor expectations around central bank hikes have gyrated. But the broad conclusion appears to be that the banking issues have brought the end of central bank hiking cycles closer. According to the CME FedWatch Tool, as of writing, markets are pricing Fed cuts later in 2023. As a result, the dollar has suffered in March. The yen has gained the most (due partly to its safe haven qualities) followed by the pound and Swiss franc.

CME Group positioning data on FX options show investors have turned to using options during the recent bout of volatility. Open interest in CME FX option contracts has jumped across most strikes for G10 FX. In EUR/USD, we find notable demand for bullish 1.10 strikes (Chart 1). This suggests investors expect continued dollar weakness. This view carries over to USD/JPY, where investors have added puts with strikes in the range of 125 to 130.

Macro Hive take: We still believe the Fed will hike more than most investors think, but it must decelerate first. The Fed will hike through 5% and support the dollar in the medium term. However, the slower pace at a time when the ECB is hawkish and the Bank of Japan could exit its YCC suggests near-term dollar weakness could continue.

FX Investor Risk Appetite

CME Group has a range of FX volatility data to help investors track the level of volatility. We can also use FX volatility data to determine investor risk appetite. We find the shape of the FX volatility curve useful in this regard. When shorter-dated FX implied volatility is higher than longer-dated volatility, this suggests investors are worried or in panic mode. In contrast, when shorter-dated FX volatility is lower than longer-dated volatility, this suggests investors expect calm markets. The latest data finds:

  • The FX volatility curve remains inverted, more so than February. Inversion means shorter-term volatility is higher than longer-term volatility. So, it appears investors are still in “fear” mode, and the picture could be worsening (Chart 3).
  • Another measure of nervousness is CME Group's CVOL volatility indices. CME Group’s G5 aggregate FX index has picked up through March, having fallen through January and moved sideways in February.
  • Outside FX, both equity and rates volatility has jumped, suggesting more fear among investors.
  • Overall, measures of volatility suggest investors are fearful.
Stay in the know

Get exclusive analysis from Macro Hive on the latest macro FX themes to watch and the FX futures and options to use to act.

The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Macro Hive. CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.


CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2024 CME Group Inc. All rights reserved.