Overnight expiry options incorporated policy announcements from the U.S., Japan, U.K., Sweden and Norway on Wednesday. As a result, the rise in related implied volatility serves as a strong indicator of the anticipated level of actual/realized FX volatility these events might trigger.

EUR/USD doesn't care too much for the U.S. Federal Reserve announcement.

Its overnight expiry implied volatility only increased 50% from a long term low of 10.0, to 15.0 - a premium/break-even of 44 USD pips to 66 USD pips. That's below last weeks ECB and U.S. CPI inclusive peak of 19.0 or 83 USD pips.

The biggest batch of impending EUR/USD strike expiries in 2024 surround 1.0500 and their related hedging flows are having a significant impact on EUR/USD ranges and volatility.

USD/JPY includes the Bank of Japan and U.S. Fed and saw the biggest increase amid its G10 FX peers from 12.5 to 26.0 Tuesday-Wednesday - which is 80 JPY pips to 166 JPY pips. EUR/JPY might be a better gauge of pure BoJ volatility risk premium, with its overnight expiry implied volatility increasing from 13.5 to 23.0 on Wednesday or 91 JPY pips to 155 JPY pips - highs since September.

Overnight GBP/USD implied volatility increased from 8.0 to 13.5 after including the Bank of England and Fed - a premium/break-even of 43 USD pips to 71 USD pips. Overnight EUR/GBP skips the Fed and its gains are more limited from 7.0 to 9.0 - a premium/break-even of 24 GBP pips to 31 GBP pips.

Overnight EUR/SEK implied volatility up from 7.25 to 9.5 or 348 to 457 SEK pips since including the Riksbank. Overnight EUR/NOK implied volatility increased from 8.5 to 12.0 - a premium/break-even 418 to 592 NOK pips.

AUD/USD overnight expiry implied volatility up from 13.0 to 18.0 since including the Fed - a premium/break-even of 34 USD pips to 47 USD pips

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(Richard Pace is a Reuters market analyst. The views expressed are his own. Editing by Andrew Cawthorne)

((Richard.Pace@Thomsonreuters.com))