Expectations for euro-dollar, US stock volatility plummet

Expectations for US equities and euro-dollar tumult plummeted on Monday after Sunday’s French election result extinguished one potential near-term risk factor for investors.

The Vix index, a measure of expectations for volatility over the next 30 days, dropped 3.3 points to 11.39 ahead of Wall Street’s opening bell. The biggest decline since November brings the so-called “fear gauge” back down to the low levels that persisted for much of the start of this year.

Meanwhile, expected one-month volatility in the euro-dollar pair that is implied by the price of options abruptly plunged by 4.74 percentage points to 8.27 per cent, Bloomberg data show.

Hedging activity picked up steam in recent weeks after Jean-Luc Mélenchon, a far-left candidate, surged in French election polling, raising the spectre of a face-off between him and Marine Le Pen, the far-right candidate.

However, after the first leg of the election that took place on Sunday, Ms Le Pen is expected to take on centrist Emmanuel Macron in a run-off scheduled for next month. The latter is the favourite to win — something that eases concerns for the potential for a French exit from the eurozone.