Month-end FX rebalancing flows are said to be weighing on the USD and underpinning EUR and SEK, but FX volatility remains low to cap implied volatility going into Wednesday's U.S. rate decision.

Overnight expiry will include the Fed and Bank of England from Wednesday and any related implied volatility gains will offer clues on the perceived real volatility risk from those events. However, 1-week expiry implied volatility gains were limited when they first included the Fed, so markets aren't looking for a significant FX reaction. Neither central bank will cut rates, but markets will be looking for any clues as to when they might.

Overnight expiry will also include Sweden's Riksbank from Wednesday, but an expected lack of additional volatility premium would reinforce expectations of no reaction to the anticipated 4% rate stay.

EUR/USD option implied volatility and its EUR put/USD call premium sit just above recent lows and reflect the spot setback.

Three-month expiry now includes the April 26 Bank of Japan policy decision, which is deemed the most likely date for any policy change after the central bank failed to act last week. The subsequent gains for 3-month expiry JPY related implied volatility and its premium for JPY call over put options reinforce those expectations.

For more click on FXBUZ

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

((Richard.pace@thomsonreuters.com;))