The U.S. dollar has achieved stability after its major decline during the first part of this year yet FX options traders continue to predict additional dollar depreciation. The U.S. economy faces growing concerns while ongoing trade tensions continue to affect market sentiment.
Investors initially believed that President Donald Trump’s policies including tax cuts would boost the value of the dollar at the beginning of the year. The dollar reached its lowest point in three years after the April introduction of extensive tariffs. The options market indicates negative expectations despite temporary tariff suspensions that have stabilized markets.
According to Tim Brooks who leads FX options at Optiver the market shows an unusual rise in USD put options relative to call options. The right to sell at a predetermined price through puts indicates bearish market expectations.
The dollar faces an unclear future because market participants must deal with an unclear economic situation. The dollar faces a high probability of additional depreciation according to Brooks.
The value of currencies is expressed through pairs where euro-dollar represents a bullish euro position which simultaneously indicates bearish dollar expectations. The current market positions indicate that most investors predict additional dollar depreciation despite its current stability.
