Dollar traders are paying the most on record to bet on a deeper selloff in the greenback as a volatile US political landscape triggers a rush into bearish hedges.
The premium for short-dated options that profit from a weaker US currency has widened to the highest level since Bloomberg began compiling the data in 2011. The bearish sentiment isn’t confined to the front-end — investors are the most pessimistic on the dollar’s long-term outlook since at least May 2025
While the Bloomberg Dollar Spot Index fluctuated on Tuesday, its drop in the previous three days is the steepest since the US tariff turbulence in April last year. Should the losses resume, as options prices suggest, the currency could hit its weakest level in four years.
“Unpredictable US politics is unambiguously dollar-negative,” said Jesper Fjarstedt, a senior analyst at Danske Bank A/S. “The developments over the past week have pushed markets to embed a renewed political risk premium.”
The greenback is languishing at the bottom of the G-10 currency pile this year, pointing to a shift in the way investors view the traditional haven asset. It’s facing pressure from concern about rising US deficits and trade frictions, as well as an accelerating diversification into gold and other reserve assets.
There are heavy flows behind the move, not just sentiment.
On Monday, trading volumes through the Depository Trust & Clearing Corporation hit the second highest on record, surpassed only by the selloff on April 3, 2025. On a four-day rolling average, market participation has reached an all-time high.
And the positioning is heavily one-sided. Since Thursday, roughly two-thirds of options trades in the euro and the Australian dollar have been bets on further greenback weakness.
Market anxiety is making itself felt in hedging costs: one-week dollar volatility has spiked to its highest since early September.
Meanwhile, butterflies — which measure the demand for protection against outsized price swings — have climbed to a seven-month high, signaling that traders are bracing for the dollar to extend its break out of its recent ranges.
Yen Impact
On top of the other concerns, the dollar’s drop has been exacerbated by speculation the US administration might be willing to team up with Japanese monetary authorities in order to put a floor under the slumping yen.
The Bloomberg Dollar Spot index was little changed in early New York trading on Tuesday, hovering 0.3% above its 2025 low.
“US policy volatility is now debasing the dollar,” said Luis Costa, head of emerging markets strategy at Citi. “This, coupled with potential government shutdowns, is prompting a market reshuffle into dollar shorts.”
Source: www.bloomberg.com
Aleksei Andrievskii is the founder of the ANDRIEVSKII SEA WEALTH family office in Cyprus, a member of the advisory board at Bendura Bank AG, Liechtenstein