Sujata Rao and Danilo Masoni

MILAN/LONDON, (Reuters) – Volatility rose across the markets Monday with a gauge for potential swings at the euro-dollar currency rate at its highest level since November 2020. A key indicator of equity swings also rose to their highest levels in over two weeks.

After a U.S. warning about a possible Russian invasion of Ukraine, markets reacted with fear late Friday night. According to the United States, Russia may create a pretext unexpectedly for an attack on Sunday.

Wall Street and stock markets plunged on Monday. Wall Street had been forecasted for a less strong start while oil prices rose to $100/barrel. Government bonds and Swiss franc were the most sought-after assets.

VIX equity volatilty measure, also called Wall Street’s “fear gauge”, rose to 32 points at its highest level since Jan. 28. ()It has fallen to below 20 points since last week. To trade at above 33 points, it reached its highest point since Jan. 24, when it was trading below 20 points.

One-month volatility for index rose to 39. This is the highest level since November 2020. The index was at 38.2 when it rose 16 points.

It also affected bond and currency markets. The euro-dollar one month implied volatility stood at 7.6%. At the beginning of January, it was below 6%.

Inflation for the Euro-franc was 5.7% as the currency fell against safe-haven Swiss Francs, marking the highest rate since May 2020.

Deutsche Bank (DE) Index of G10 Currency Volatility rose to 7.5%. It is now the highest index since February 2021. BofA closed Friday with a record 94 point gauge of volatility in bond markets.

Market volatility has increased due to central bank policies. An inflation rate at multi-year or record highs has fueled speculation that the U.S. Federal Reserve might opt for an aggressive frontloaded rate-hike cycle, and the European Central Bank could raise interest rates in this year.

UBS Global Wealth Management observed that market swings were on the rise, while COVID-19 worries had declined. It stated that volatility remains high due to repeated upward surprises in U.S. inflation data and increasing concerns about Eastern Europe.