Turkey’s lira lost 15% of its value against the US dollar in a one-day dive, as of 10:00 am Eastern Standard Time. The usual suspects among the carry currencies (Mexican peso, South African rand, Brazilian real and Russian ruble) fell.

Outside of the carry-trade universe, calm prevailed. The market’s estimation of currency risk, the normalized cost (or implied volatility) of options on individual currencies, was mainly unchanged for Asian currencies. The implied volatility of options on the USD-CNY exchange rate fell slightly.


The daily change in implied volatility is shown in the chart above. Turkey’s risk has gone through the roof, with the implied volatility on lira options up to 47 percentage points, which might be an all-time record for a major currency. As noted, China risk declined.

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