Stampede to Buy Euros at End-of-Month Fix Rattles FX Trading

(Bloomberg) -- Traders rushed to buy euros in a bid to rebalance their portfolios on the last day of the month, prompting a sudden spike in the currency.

The euro jumped to a two-week high of $1.0972 versus the dollar around the time of the 4 p.m. London fix on Thursday as demand surged. Nearly $3.7 billion worth of euro futures contracts traded in the half hour preceding the fix, the highest for any comparable period since March 6.

The jump in volume followed the expiry of nearly 2.1 billion euro ($2.3 billion) worth of options at a strike price of 1.08 for the euro-dollar pair, while another 1 billion euros of similar options rolled-off the day before. The common currency had earlier weakened after the European Central Bank left interest rates unchanged and said it was ready to do whatever was needed to support the region's economy.

The drop in volatility in euro from a month earlier also played a part in boosting volume Thursday. The fear surrounding the coronavirus pandemic pushed volatility higher in March, prompting investors to start rebalancing their portfolios earlier than usual. One-month implied volatility on the euro on March 19 rose to 15.44%, the highest since 2016. The gauge has since eased off and was at 6.54% on Friday.

Futures volumes in yen also surged with nearly 17,300 contracts, or $2 billion worth of contracts, traded in the half-hour ahead of the London fix. That was the most in a week and well above the average turnover during the month of April. The rise coincided with the weakening of the Japanese currency, suggesting falling demand for yen.

Japan's Prime Minister Shinzo Abe indicated that the state of emergency may be extended as the country enters the Golden Week holiday period. The yen slumped almost 0.5% against the dollar on Thursday, the most since early April. It was up 0.1% at 107.11 per dollar as of 8:08 a.m. on Friday in London.