Latest news with #LauraMatthews
Yahoo
03-06-2025
- Business
- Yahoo
Analysis-FX options market positioned for further dollar weakness
By Laura Matthews and Saqib Iqbal Ahmed NEW YORK (Reuters) -The U.S. dollar has steadied after a sharp tumble this year but traders in the foreign exchange options market are positioned for the U.S. currency to weaken further amid growing concern about the U.S. economy and persistent trade-related tensions. Investors started the year expecting the Trump administration's policies to boost the dollar, helped by his tax cuts and safe haven demand stemming from protectionist policies. But that view quickly soured when U.S. President Donald Trump unveiled levies in April that were larger and broader than anticipated, spiking volatility and sending the dollar to a three-year low. While a temporary pause in some of the reciprocal tariffs has helped calm nerves, the options market still paints a dour outlook for the dollar. The options market can offer a view on how investors and traders expect currencies to fare months down the line. "FX option prices in general continue to point to a greater risk of further dollar weakening," said Tim Brooks, head of FX options at Optiver. "From our perspective there is no clear single large position, but relative to the past 5-10 years, we see unprecedented demand from investors to own USD puts in comparison with at-the-money options or USD calls." Put options confer the right to sell the underlying security at a fixed price and date and are typically bought to express a bearish view. Their bullish counterpart is the call option, which grants the right to buy at a set price and known time frame. Because the foreign exchange market quotes currencies in pairs like dollars per euro, and yen per dollar, a bullish position on the euro indicates a bearish view on the dollar. FX risk reversals, a type of options strategy that involves the simultaneous purchase of a put option and sale of a call, or vice versa, are useful indicators of which currency is seeing more demand. Pricing on several of these currency pairs remains near multi-year highs despite the pause in the dollar's slide this year, highlighting the market's bearish stance on the buck. According to LSEG data, the three-month, six-month, and one-year 25-delta EURUSD at-the-money risk reversal measures just edged off their highest level of bullishness for the euro against the dollar on records dating to 2007, apart from a brief interlude during the 2020 pandemic's market disruption. "Positioning remains extremely bearish on the dollar," Karl Schamotta, chief market strategist at Corpay, said. "Pricing increases across the curve, with one-year risk reversals trading well above their shorter-term equivalents, suggest that options market participants expect the euro to continue its gradual grind higher," he said. The euro is up nearly 10% against the dollar this year. DOLLAR BEARS AT PLAY Other popular bets being placed are for the dollar to fall against the yen, Sagar Sambrani, senior FX options trader at Nomura, said. Investors are building up positions in dollar puts, trades to sell the U.S. currency particularly against currencies like the euro and sterling, suggesting they remain convinced the greenback has more losses in store. CME Group's options data show USD puts have drawn strong demand, both in aggregate and against most major currencies. In May, USD puts made up just over 59% of traded FX options volume, said Chris Povey, head of FX options at CME Group. Demand for dollar puts over calls was especially apparent in the yen and the Australian dollar, Povey said, making up more than 65% of the options volume in those pairs. Options data hint at expectations that the pace of decline in the dollar from here may be more measured relative to the sharp drop seen since the start of the year. The dollar is down about 9% against the euro, and the yen, respectively, for the year. The euro was last at $1.1443, and the dollar was trading at 142.70 yen. "Traders think spot market momentum will fade in the short term, but are betting on a gradual narrowing in relative growth differentials between the advanced economies by the autumn, along with a slow-motion diversification push over the next year, with major investors reallocating resources toward structurally undervalued markets outside the United States," Corpay's Schamotta said. CONTRARIANS BEWARE Investor confidence in the U.S. economy outperforming the rest of the world has taken a knock in recent months. Worries about rising U.S. debt and a widening budget deficit have also come to the fore, bolstering investors' desire to lighten up on U.S. assets. "I don't think we have the conviction to fight this consensus," Jayati Bharadwaj, a global FX strategist at TD Securities. "The new announcements that we have seen since the start of the year ... after a long time there are fundamental reasons to be bearish on the dollar," she said. With trade policy in flux, the dollar could well experience modest relief rallies. It also has the great advantage of being the No. 1 central bank reserve currency, backed by the world's safest and most liquid government debt market, with higher interest rates than rival developed-economy currencies. But on balance, the path of least resistance for the dollar is lower, strategists and investors said. "We've seen a significant amount of buying of dollar puts coming from a number of different types of clients," said an FX options trader at a large U.S. bank, who did not want to be named because of the private nature of these trades. "We still want to have exposure to dollar weakness, because that's the trade that when you add up all the things that are going on in the world probably makes the most sense," the trader said.
Yahoo
05-05-2025
- Business
- Yahoo
CFTC moves to drop appeal in Kalshi's event contracts case
By Laura Matthews and Chris Prentice NEW YORK (Reuters) - The U.S. Commodity Futures Trading Commission on Monday moved to drop its appeal of a court decision that allowed New York derivatives trading platform KalshiEX LLC to list contracts Americans can use to bet on election outcomes. The CFTC asked to allow it to voluntarily dismiss the case, agreeing that each party to the lawsuit will bear its own costs and fees, according to a filing in the U.S. Court of Appeals for the D.C. Circuit on Monday. A representative for CFTC said the agency filed the motion for voluntary dismissal following a vote of the Commission. A source with knowledge of the matter said the CFTC voted 3-0 in favor of dropping the appeal, with one of the agency's four commissioners abstaining from voting. WHY IT MATTERS The CFTC is walking away from the appeal at a time of flux in regulations over such prediction markets, which critics say are introducing risk into financial markets. KEY QUOTE "Today is historic. We have always believed that doing things the right way, no matter how hard, no matter how painful, pays off. This result is proof of that," said Tarek Mansour, CEO and co-founder at Kalshi, in a statement to Reuters. "Kalshi's approach has officially and definitively secured the future of prediction markets in America." CONTEXT Kalshi sought permission from the CFTC in June 2023 to list contracts that would let Americans bet on whether a particular party will control the House of Representatives and Senate in a given term. The CFTC prohibited Kalshi from listing and clearing its cash-settled political event contracts concerned about unlawful gaming and other activities that it said were not in the public's interest. Kalshi then sued, saying the CFTC exceeded its authority. A judge in the D.C. District Court sided with Kalshi in September. The CFTC immediately appealed, requesting an emergency stay on the lower court's order. The DC circuit ruled in October that Kalshi could list its event contracts, stating that the CFTC did not show how the agency or the public interest would be harmed by them as it claimed. The DC circuit later heard related arguments in January, shortly before Trump took office, but had not yet ruled. Sign in to access your portfolio
Yahoo
21-04-2025
- Business
- Yahoo
Analysis-US multinationals extend currency hedges to counter Trump's tariff volatility
By Laura Matthews NEW YORK (Reuters) -U.S. multinational companies are extending their currency hedges to longer periods to shield their cash flows from potential exchange rate volatility triggered by the Trump administration's tariff policies. The change in duration reflects the heightened uncertainty for these multinationals in the rapidly changing global trading landscape, particularly amidst fears of a recession and a weakening dollar. A sharp jump in FX market gyrations following U.S. President Donald Trump's April 2 unveiling of higher-than-expected global tariffs left some of their hedges underwater, bankers and hedging advisors said. Even companies that weathered the surge in volatility relatively well have started to extend the duration of their hedges. "Over the past week, we've seen a group of clients push their hedges out to the maximum available tenor as they look to lock in protection and ride out near-term instability," said Eric Huttman, CEO of MillTechFX. Instead of hedging short-term risks, Garth Appelt, head of FX & emerging markets derivatives at Mizuho Americas, said his clients are now hedging two to five years out as dollar weakness has become one of the biggest fallouts of the tariff-related market turmoil. A weaker dollar can be good for U.S. exporters since it makes their products relatively cheaper abroad. But uncertainty about global trade and recession fears is prompting companies to take additional steps to guard future profits. A 90-day reprieve on some duties for all trading partners except China has done little to arrest the dollar's decline or to tame the heightened volatility in the foreign exchange markets. The dollar has weakened against major peers, with the euro hitting a three-year high against the greenback. Companies have another powerful reason to look further out for their hedges: higher volatility has driven up the cost of near-term hedging instruments. "Hedging farther out along the curve maintains the same level of protection against currency movements but without the need to crystallize profit and loss generated by short-term FX swings," said Simon Lack, head of investment solutions at MillTechFX. Volatility expectations embedded in one-month and three-month at-the-money options contracts rose 72% and 46%, respectively, since April 2, before slightly easing, according to LSEG data. That means companies must pay more to insure themselves against potential losses in the short term. Meanwhile, a two-year at-the-money EUR/USD options increased by just 23%. PIVOTING TO OPTIONS Trump's tariff shock has upended most market participants' assumptions on the outlook for the euro. While a stronger euro is generally beneficial for U.S. companies with sizeable sales in Europe since their foreign earnings convert to more U.S. dollars, it can also raise the cost of doing business for others. "We're seeing a lot more structures trying to protect anyone that needs to purchase euros for goods and materials," said Appelt. Paula Comings, head of FX sales at U.S. Bank, said euro strength caught some clients a bit wrong-footed. "There was tremendous focus on refining CAD (Canada) and MXN (Mexico) hedging strategies. Corporates have shifted attention now to better position themselves for a stronger euro," she said. Some businesses are exploring window forwards, which offer the benefits of forward contracts but with flexible execution time frames, particularly appealing for companies facing an uncertain cash flow environment. The appetite for other types of contracts that allow companies to buy or sell currencies at more attractive rates for a number of expiries without an upfront cost is also growing. Over the past two to four weeks, Comings said more of her clients have also been pivoting away from hedging with forwards towards options, for greater flexibility as trade tensions drag on. "There's some value in pursuing an option strategy. You don't have to decide today what tomorrow is going to look like," said Bob Stark, global head of enablement, at Kyriba. "It's always hard to predict tomorrow. But it's especially hard right now." Sign in to access your portfolio
Yahoo
21-04-2025
- Business
- Yahoo
Analysis-US multinationals extend currency hedges to counter Trump's tariff volatility
By Laura Matthews NEW YORK (Reuters) -U.S. multinational companies are extending their currency hedges to longer periods to shield their cash flows from potential exchange rate volatility triggered by the Trump administration's tariff policies. The change in duration reflects the heightened uncertainty for these multinationals in the rapidly changing global trading landscape, particularly amidst fears of a recession and a weakening dollar. A sharp jump in FX market gyrations following U.S. President Donald Trump's April 2 unveiling of higher-than-expected global tariffs left some of their hedges underwater, bankers and hedging advisors said. Even companies that weathered the surge in volatility relatively well have started to extend the duration of their hedges. "Over the past week, we've seen a group of clients push their hedges out to the maximum available tenor as they look to lock in protection and ride out near-term instability," said Eric Huttman, CEO of MillTechFX. Instead of hedging short-term risks, Garth Appelt, head of FX & emerging markets derivatives at Mizuho Americas, said his clients are now hedging two to five years out as dollar weakness has become one of the biggest fallouts of the tariff-related market turmoil. A weaker dollar can be good for U.S. exporters since it makes their products relatively cheaper abroad. But uncertainty about global trade and recession fears is prompting companies to take additional steps to guard future profits. A 90-day reprieve on some duties for all trading partners except China has done little to arrest the dollar's decline or to tame the heightened volatility in the foreign exchange markets. The dollar has weakened against major peers, with the euro hitting a three-year high against the greenback. Companies have another powerful reason to look further out for their hedges: higher volatility has driven up the cost of near-term hedging instruments. "Hedging farther out along the curve maintains the same level of protection against currency movements but without the need to crystallize profit and loss generated by short-term FX swings," said Simon Lack, head of investment solutions at MillTechFX. Volatility expectations embedded in one-month and three-month at-the-money options contracts rose 72% and 46%, respectively, since April 2, before slightly easing, according to LSEG data. That means companies must pay more to insure themselves against potential losses in the short term. Meanwhile, a two-year at-the-money EUR/USD options increased by just 23%. PIVOTING TO OPTIONS Trump's tariff shock has upended most market participants' assumptions on the outlook for the euro. While a stronger euro is generally beneficial for U.S. companies with sizeable sales in Europe since their foreign earnings convert to more U.S. dollars, it can also raise the cost of doing business for others. "We're seeing a lot more structures trying to protect anyone that needs to purchase euros for goods and materials," said Appelt. Paula Comings, head of FX sales at U.S. Bank, said euro strength caught some clients a bit wrong-footed. "There was tremendous focus on refining CAD (Canada) and MXN (Mexico) hedging strategies. Corporates have shifted attention now to better position themselves for a stronger euro," she said. Some businesses are exploring window forwards, which offer the benefits of forward contracts but with flexible execution time frames, particularly appealing for companies facing an uncertain cash flow environment. The appetite for other types of contracts that allow companies to buy or sell currencies at more attractive rates for a number of expiries without an upfront cost is also growing. Over the past two to four weeks, Comings said more of her clients have also been pivoting away from hedging with forwards towards options, for greater flexibility as trade tensions drag on. "There's some value in pursuing an option strategy. You don't have to decide today what tomorrow is going to look like," said Bob Stark, global head of enablement, at Kyriba. "It's always hard to predict tomorrow. But it's especially hard right now." Sign in to access your portfolio
Yahoo
04-04-2025
- Business
- Yahoo
Dollar gains vs euro, pares losses vs yen after US payrolls data
By Laura Matthews NEW YORK (Reuters) - The U.S. dollar rose against the euro and trimmed losses versus the yen on Friday, after non-farm payrolls data showed the U.S. economy added more jobs than expected in March. Non-farm payrolls rose by 228,000 jobs last month after a downwardly revised 117,000 rise in February, the Labor Department said. The euro is 0.21% weaker versus the dollar at $1.103, while the greenback pared losses against the yen to trade 0.29% lower at 145.67 yen. Uto Shinohara, senior investment strategist at Mesirow Currency Management, said that although non-farm payrolls significantly exceeded expectations, dollar moves were relatively subdued because markets remain focused on potential tariff-related repercussions. China announced additional tariffs of 34% on U.S. goods on Friday, the most serious response in a trade war with President Donald Trump, fuelling recession concerns and triggering a global stock market rout. "Heightened global awareness of trade tensions has increased FX volatility in response to tariff-related factors, evident in China's retaliatory measures pressuring the Australian dollar – risk currency – while supporting the Swiss franc – safe-haven currency," said Shinohara. "However, the employment report had a more limited impact on FX markets, as uncertainty surrounding tariff outcomes remains a dominant market driver." Currency bid prices at 4 April 01:16 p.m. GMT Descripti RIC Last U.S. Pct YTD Pct High Low on Close Change Bid Bid Previous Session Dollar 102.18 102.01 0.18% -5.82% 102.66 101. index 53 Euro/Doll 1.1031 1.1053 -0.18% 6.56% $1.1108 $1.0 ar 964 Dollar/Ye 145.36 146.135 -0.42% -7.52% 146.51 144. n 58 Euro/Yen 160.37 161.41 -0.64% -1.75% 162 159. 62 Dollar/Sw 0.851 0.8594 -0.98% -6.23% 0.8594 0.84 iss 78 Sterling/ 1.3 1.31 -0.74% 3.96% $1.3113 $1.2 Dollar 962 Dollar/Ca 1.4206 1.4097 0.78% -1.2% 1.4243 1.40 nadian 54 Aussie/Do 0.6121 0.6329 -3.26% -1.05% $0.6332 $0.6 llar 05 Euro/Swis 0.9387 0.9492 -1.11% -0.06% 0.9496 0.93 s 68 Euro/Ster 0.8484 0.8432 0.62% 2.55% 0.8507 0.84 ling 32 NZ 0.5649 0.5794 -2.47% 0.99% $0.5797 0.56 Dollar/Do 14 llar Dollar/No 10.5922 10.3188 2.65% -6.81% 10.6111 10.3 rway 066 Euro/Norw 11.6849 11.4046 2.46% -0.71% 11.715 11.4 ay 03 Dollar/Sw 9.9132 9.7647 1.52% -10.02% 9.9854 9.74 eden 51 Euro/Swed 10.9361 10.7931 1.32% -4.63% 11.0066 10.7 en 94 Sign in to access your portfolio
