Hedge funds are increasing bets against the US Dollar as risk reversals hit their lowest levels since February and demand for USD put options surges.
Macro & Markets ·
Hedge funds are increasing bearish positions on the US Dollar, with one-month risk reversals on the Bloomberg Dollar Spot Index falling to −0.25, marking their lowest level since February. This metric—which reflects the relative demand for bullish versus bearish currency options—had remained positive throughout March to July before shifting sharply negative in recent weeks. The repositioning intensified on August 21st, when demand for US Dollar put options against the Euro exceeded call demand by 47 percent, according to Depository Trust and Clearing Corp data.
The shift in positioning coincides with weakness in the dollar itself. The Bloomberg Dollar Spot Index has declined 2.8 percent over the past two months, reaching its lowest point since May. The convergence of rising short bets and falling valuations suggests sustained pressure on the currency, though the exact drivers of hedge fund sentiment remain unspecified in available data.
What remains unclear is whether this positioning reflects expectations of broader economic weakness, shifts in interest rate differentials, or other macroeconomic factors. The duration and magnitude of additional dollar depreciation anticipated by these market participants also remain open questions.