Tumbling FX vol draws hedgers

Hedge funds and other sophisticated investors have been snapping up cheap long-dated foreign exchange volatility over the past few months as a proxy hedge for investments in other asset classes, say dealers.

Despite upheavals in other markets - in particular, the credit market, which has experienced sharp spread widening on the back of rising delinquencies in US subprime mortgages - the foreign exchange market has remained relatively benign for much of the year.

Implied volatility in the G-7