Under the risk of the US election, the cost of hedging the US dollar has risen to a new 18-month high
As the US presidential election approaches, the cost of hedging the US dollar has risen to a 18-month high. The price of a one-month option contract for the Bloomberg US Dollar Spot Index has seen the largest increase in two years, reflecting traders' concerns about US dollar volatility. Opinion polls show that Democratic candidate Harris and Republican candidate Trump have similar levels of support, leading traders to weigh the impact of their economic policies on the US dollar. Despite expectations of a reduced interest rate cut by the Federal Reserve, option traders' optimism towards the US dollar is increasing
According to the Zhitong Finance and Economics APP, as the closely contested US presidential election approaches, traders are rushing to hedge against the volatility of the US dollar. On Friday, the price of a one-month option contract linked to the Bloomberg US Dollar Spot Index saw the largest increase in two years, reaching its highest level since March 2023.
It is reported that opinion polls show that there is still a neck-and-neck race between Democratic presidential candidate Harris and Republican presidential candidate Trump. This is a nightmare for traders, as they must weigh the possibility of the economic policies of the two presidential candidates leading the US dollar down very different paths.
For some, completely avoiding trading the US dollar and choosing strategies that can profit regardless of the US dollar's movement may be easier. Data from DWS Global Markets shows that as of the end of September, long-term investor positions in the US dollar have reached the most neutral level in two and a half years.
Investors are now taking more proactive measures to protect their investment portfolios. However, with expectations of a significant rate cut by the Federal Reserve diminishing, option traders are becoming increasingly optimistic about the US dollar. The US dollar one-month risk reversal index, reflecting market positioning and sentiment, is at its highest bullish level in nearly three months. Following Federal Reserve Chairman Powell's statement that the US economy is on a solid footing, the money market has reduced expectations of a 50 basis point rate cut by the Federal Reserve in November or December. Current pricing implies that the likelihood of a 50 basis point rate cut by the Federal Reserve in November is only 30%, down from 60% a week ago