Hedge funds and currency traders are increasingly favouring the euro over the dollar in the options market, as geopolitical uncertainty and volatile US policy drive a reassessment of the greenback’s dominance, according to a report by Bloomberg citing data from the Depository Trust & Clearing Corporation (DTCC).
Between January and May, as much as 30% of currency option trades once tied to dollar pairs have shifted toward euro-based contracts, according to DTCC. The move signals growing investor unease with the US dollar, which has dropped over 7% this year and faces rising skepticism from global allocators.
While the dollar remains central to the $7.5tn-a-day FX market, hedge funds are using euro-yen options not only for directional bets but also as a haven trade — a role traditionally held by the dollar. Volatility pricing now shows euro-yen as more stable than dollar-yen during market shocks, according to BNP Paribas strategist Oliver Brennan, who called this “a really important signal” of the euro’s evolving role.
The shift comes amid a broader reallocation into European assets, driven by fiscal stimulus, a loosening ECB policy stance, and relative political calm. The euro has rallied 11% against the dollar year-to-date, outperforming every major currency. Macro Hive’s Ben Ford notes that euro-based options are also proving more cost-effective for funds, with implied volatility significantly lower than comparable dollar trades.
This transition reflects both push and pull factors: diminishing confidence in US fiscal and trade policy — particularly following former President Trump’s tariff threats — and increased optimism around European growth and stability. Investors are also positioning for further euro outperformance, as shown in widening 10-delta fly spreads between euro-yen and dollar-yen.
While some warn against prematurely calling time on the dollar, sentiment has shifted. Hedge fund titan Paul Tudor Jones recently forecast another 10% drop in the greenback, underscoring the momentum behind the move.
