G10 FX option implied volatility appears to remain predominantly heavy, which can be attributed to a combination of factors including the ongoing lack of current or anticipated FX volatility observed since the release of the U.S. jobs data on Friday. The economic landscape has shifted focus toward U.S. inflation data, which poses the primary data risk to FX volatility throughout this week. Specifically, Wednesday's Producer Price Index (PPI) is expected to garner increased attention as a crucial indicator, or bellwether, leading up to the more critical Consumer Price Index (CPI) number scheduled for release on Thursday. Notably, it has been observed that the overnight expiry implied volatility has remained unchanged since the inclusion of the PPI data and is significantly lower than the pre-NFP (non-farm payroll) highs seen on Friday. This trend suggests that market participants, or dealers, do not foresee any substantial deviations from prevailing expectations that would impact the existing weaker trajectory of U.S. interest rates and, consequently, the outlook for the U.S. dollar (USD).

In Japan, the impending leadership vote within the Liberal Democratic Party (LDP), set for October 4, is positioned before the one-month expiry of options, contributing to an elevated level of related implied volatility. The one-month expiry implied volatility has marginally surpassed previous 5-week highs, reaching 10.2 on Tuesday. Additionally, there have been reports that the Bank of Japan may consider easing its long-term bond purchasing strategy and possibly raising interest rates in the fourth quarter, which provided a supportive boost to the Japanese yen (JPY) and contributed positively to the implied volatility environment.

With respect to the AUD/USD currency pair, it currently stands on the verge of breaking above the July high of 0.6625. Should this breakout occur, it may propel the exchange rate towards the 0.6700 level while concurrently lifting implied volatility as a result of increased market activity.

For the EUR/USD pair, there has been an uptick in the topside strike premiums of risk reversals; however, a prevailing lack of FX volatility coupled with slow progress in topside movement has left the related implied volatility in a state of stagnation, currently recorded at one-month volatility of 7.25.

Turning to the GBP/USD currency pair, the one-month expiry implied volatility has retraced the gains seen in the previous week, which were in the range of 7.0-8.0, amid a recovery in the spot market. Likewise, the one-month 25 delta risk reversal has similarly decreased, now standing at 0.4 after previously rising to 0.7, indicating a shift in the market sentiment regarding GBP puts relative to calls. Furthermore, it is worth noting that the post-UK budget expiry dates, particularly those extending into early 2026, have exhibited slower easing, reflecting the cautious sentiment that surrounds the UK’s delicate fiscal situation.