BUZZ-COMMENT-Are FX markets underpricing Fed Powell and U.S. CPI risk?

Feb 11 (Reuters) - Options that include U.S. Fed Chair Jerome Powell's semi annual testimony to the Senate Banking Committee on Tuesday and key U.S. CPI data on Wednesday haven't added much in the way of FX volatility premium, despite having done so in the past.

FX volatility is a key yet unknown part of an FX option premium, so dealers use implied volatility as a substitute. Any disparity between implied and actual/realised over the life of the option makes volatility a tradable asset.

When overnight expiry options first include a major event like Tuesday's Fed chair speech and Wednesday's inflation data, any change in implied volatility is a bellwether for the additional realised volatility that dealers expect the event to generate.

However, since including the first of Powell's two speeches and Wednesday's U.S. CPI data, overnight expiry implied volatility has barely changed.

Overnight expiry EUR/USD implied volatility opened around 15.0 on Tuesday - a premium/break-even of 64 USD pips in either direction. For context, it increased from 12.5 to 17.5 before the January 15 U.S. CPI release - a premium/break-even of 53 USD pips to 75 USD pips.

USD/JPY overnight implied volatility opened unchanged around 16.75 or 106 JPY pips in either direction, having jumped from 14.5 to 17.0 before January's CPI data release (92 JPY pips to 108 JPY pips).

AUD/USD overnight implied volatility is 11.0 on Tuesday from 10.5 on Monday or 29 from 28 USD pips compared with 13.0 from 10.0 or 33 USD pips from 26 USD pips before the January 15 data.

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