May 19, 2020 / 7:51 AM / 12 days ago

Cost of betting on euro downside vs dollar falls in option markets

FILE PHOTO: A man enters a currency exchange office decorated with images of dollars and euro bills, in Sao Paulo, Brazil, March 5, 2020. REUTERS/Rahel Patrasso

(Reuters) - The cost of betting on euro downside against the dollar in currency derivatives markets fell on Tuesday to the lowest since mid-March, after a Franco-German proposal for a recovery fund and joint debt boosted the single currency.

One-month euro-dollar risk reversals showed the implied volatility premium for euro puts against calls has shrunk to the lowest since March 17 at around minus 0.23% EUR1MRR=FN. Puts are options that allow holders to sell the euro at a certain price while calls confer the right to buy.

The euro has risen more than 1% versus the dollar since the plan was unveiled on Monday for a 500-billion euro fund and joint debt issuance EUR=EBS.

Reporting by Sujata Rao; Editing by Tommy Reggiori Wilkes

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