April 5, 2017 / 9:24 AM / 4 months ago

Cost of hedging Czech crown volatility jumps on cap removal jitters

LONDON, April 5 (Reuters) - The cost of hedging against volatility in the Czech crown against the euro over the next 24 hours jumped to its highest in over nine months on Wednesday, on speculation the country's central bank would imminenently remove the cap on its currency.

The Czech National Bank's 3-1/2-year-old commitment to keep the crown weak, which has kept the euro trading above 27 Czech crowns, ended on Friday and some investors are betting the CNB's meeting on Thursday will be used to scrap the cap.

Euro/Czech crown overnight implied volatility, derived from an option that covers the next 24 hours, hit 6.325 percent according to Reuters data, its highest since Britain's shock vote to leave the European Union last June.

One-month implied volatilty has also jumped this week, reaching 5.975 percent for the third day running on Wednesday, its highest since the aftermath of the Swiss National Bank's decision to remove its currency cap in January 2015. (Reporting by Jemima Kelly, editing by Nigel Stephenson)

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