LONDON (Reuters) – Investor demand to hedge risk in the euro around the snap French vote surged on Monday, after President Emmanuel Macron stunned markets with his decision to call a parliamentary election following wins by the far right in a European Union vote.
Options volatility, a measure of demand for protection, on contracts expiring on July 1 neared 6%, its highest since early May. Three-month vol, considered the benchmark, rose to its highest since May 15, touching 5.688%.
The first round of the French parliamentary election will be held on June 30.
A separate measure that reflects demand for options to sell the euro against the dollar fell to its lowest since late April.
Three-month risk reversals, which reflect demand for buy, or sell options on the euro, hit -0.64%, suggesting investors are at their most euro-bearish since the end of April.
Macron’s party was trounced by Marine Le Pen’s far-right National Rally (RN) party in Sunday’s election, battering French markets and shares in the country’s major banks in particular.
The euro fell broadly on Monday, tumbling to a one-month low around $1.0748 against the dollar, and to a 21-month trough against sterling, at 84.53 pence.
“Today euro/dollar may well have another leg lower to the $1.0700/0720 area once U.S. investors fully have a chance to appreciate events in European politics,” ING strategist Chris Turner said.
(Reporting by Amanda Cooper; Editing by Dhara Ranasinghe)
