Friday's U.S. jobs data carries the usual risk of heightened FX volatility, but implied volatility pricing, except for USD/JPY, indicates a more muted market reaction compared to the January release.

Overnight GBP/USD implied volatility remained unchanged when initially factoring in Thursday's Bank of England policy decision. This suggested that the market hadn't anticipated the stronger dovish tone that followed the 25bps rate cut and weighed on GBP.

EUR/USD implied volatility has found support after the significant fall from Monday's peaks. Benchmark 1-month settles in the low 8s after its 9.0-7.9 setback. Risk reversals have seen their downside over upside strike premiums fall too, with 1-month having halved to 0.6. It's worth noting a huge 1-week 1.04 versus 1.05 EUR call/USD put spread that traded 9.5 flat on 800 million euros by 1.2 billion euros.

USD/JPY implied volatility retains a slightly firmer tone after recovering recent losses when spot erased some key support levels mid-week. Options are focused on the next BoJ meeting and the potential for USD/JPY to retest 150.00.

USD/CAD implied volatility has seen a sharp reversal from Monday's 2-year highs to inauguration day lows, with the benchmark 1-month expiry down from 9.6 to 7.25 and 3-month 8.0 to 6.5. Trade tariffs were only postponed by 30 days, so CAD is still at risk and current volatility protection levels may offer decent risk versus reward.
USD/CAD FXO implied volatility


Overnight expiry FXO implied volatility


1-month expiry FXO implied volatility

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