Dollar Options Trading Signals Show Growing Doubts About U.S. Exceptionalism
Dollar options are signaling deepening doubts about the U.S. economy’s enduring strength amid shifting growth momentum in major economies around the world.
The spread between one-month call and put options for the U.S. dollar against a basket of currencies that make up the Bloomberg Dollar Spot Index has fallen 0.55 percentage point this week, according to data compiled by Bloomberg. That would be the sharpest decline since early 2020 and suggests shrinking demand for hedges against further dollar gains.
The moves reflect a possible shift in market sentiment away from the concept of U.S. exceptionalism, with other global regions now offering viable investment opportunities. Germany’s historic decision to shake off its fiscal shackles has highlighted Europe’s growth potential, while investors have applauded China’s commitment to developing artificial intelligence in its bid to boost its economy.
“Policy uncertainty is sapping confidence, with budget cuts across the federal government and tariff-related risks crimping growth,” Wei Liang Chang, a foreign-exchange and credit strategist at DBS Bank Ltd., said of the U.S. “The flip side of dollar weakness is euro strength, now supported by higher interest rates given EU leaders’ agreement to sharply increase defense spending.” Citigroup Inc. echoed that sentiment, with its strategists saying in a research note this week that the dollar’s peak strength against Asian currencies may be over. The recent significant increase in U.S. policy uncertainty is likely to continue to undermine the country’s consumer and business confidence and lead to further U.S. economic weakness, they wrote.
Source: Bloomberg
