Big Dollar Surge Hits Wall of Doubt in Options Market
The dollar pared gains on Monday, with traders unsure whether its recent surge on the back of easing U.S.-China trade tensions will last.
A gauge of the greenback’s strength fell 0.2% as positioning in the options market continued to tilt toward the currency. Data from the Depository Trust & Clearing Corporation showed that bearish dollar bets so far this week totaled about $61 billion in nominal value, more than the $55 billion in bullish trades.
The dollar rose 1% on Monday, its best daily gain since the U.S. presidential election, after the U.S. and China agreed to temporarily lower trade tariffs. That fueled hopes the world’s largest economy would avoid a recession, and prompted traders to trim bets on interest rate cuts from the Federal Reserve. Hedge funds trimmed their short dollar exposure, as the market lacked fresh bullish demand in both spot and options, according to currency traders with knowledge of the transaction who asked not to be identified because they were not authorized to speak publicly.
The rally is “all about the post-Liberation day trading easing,” Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S, wrote in a note to clients.
Source: Bloomberg
