Hedge funds and currency traders have been increasing bets on further US dollar gains, with a wave of call option buying following a more hawkish signal from the Federal Reserve this week, according to a report by Bloomberg.
Market participants began accumulating options that profit from a stronger dollar shortly after the Fed’s policy decision, which reinforced expectations that US interest rates will remain elevated. The buying continued into Thursday as investors responded to remarks from new Fed Chair Kevin Warsh, who stressed the central bank’s commitment to bringing inflation back to target.
Bank of America’s head of Americas FX options trading, Tobias Jungmann, said there has been notable demand for dollar call positions, particularly against major Group-of-10 currencies. He added that relatively low implied volatility has made options-based bullish dollar trades more attractive.
Exchange data from CME Group showed that call option volumes betting on dollar strength versus the British pound rose to more than five times the level of put options, which are used to position for dollar weakness. Trading activity in euro-dollar options also reached its highest level since early March, with large notional call trades significantly outpacing comparable bearish positions, according to Depository Trust & Clearing Corp. figures.
Barclays trader James Swindell said demand for bullish dollar exposure has been widespread, especially through EUR/USD and GBP/USD options structures, including both standard (“vanilla”) contracts and digital options that pay out once a specified price level is reached.
Financial markets have been increasingly pricing in the likelihood of tighter US monetary policy, with expectations for a possible rate hike by October contributing to renewed dollar strength. The Bloomberg Dollar Spot Index has risen for three consecutive sessions and is on course for a weekly gain of around 1%.
Rising US yields are also supporting the currency, as higher interest rates make dollar-denominated assets more attractive to global investors.
In contrast, positioning in the dollar-yen pair has been more mixed. Some traders are betting on continued yen weakness, while others are preparing for a potential reversal if Japanese authorities intervene to support the currency.
Japan’s finance ministry has warned it is prepared to take decisive action against speculative moves as the yen recently fell to its weakest level against the US dollar since mid-2024, adding uncertainty to trading strategies in the pair.
