OPTIONS: USD Puts, Asia-Pac FX Calls Remain in Demand

Currency hedging activity sitting below recent averages for this time of day, with more muted USD/JPY, USD/CNY and GBP/USD trade countering decent trade across EUR/USD, USD/CAD and USD/KRW. The bias for USD puts and Asia-Pac FX calls persists, with today's USD/KRW put/call ratio erring in favour of short-term downside.

• As was the case in Tuesday trade, USD/CNY puts are in demand, adding to the hesitant backdrop for CNY options. We wrote yesterday that FX options covering the 3m horizon remain in demand, evident in 3m implied holding either size of the 6.00 handle, a level markets have not consistently held above since Q1 2023.
• Bias for USD/CNY comes despite clear concern among regulators about the strong local currency. The front-end of the CNH vol curve remains subdued, however 2w implied are still near 2 vol points above the YTD average - which may be factoring into policymakers' thinking. Headlines yesterday cited reports that the Chinese FX regulator is gauging the impact of the strong CNY currency on the exporting sector, and how currency fluctuations are impacting hedging costs and the approach to currency risk.
• Both of these factors will have been squeezed by the move in spot and the CNH 3m forward point discount - which hit ~690 points in early August for the first time since at least 2010.