Dollar Hedging Costs Sink to Their Lowest Level This Year

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Or sign-in if you have an account.neh1}6os[1zkuqs0gml[{ua[_media_dl_1.png Bloomberg(Bloomberg) — The cost of hedging against swings in the dollar has fallen to its lowest level this year, signaling that traders see little chance of a major catalyst disrupting the world’s reserve currency despite an uncertain Federal Reserve outlook and resurgent conflict in the Middle East.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountA measure of one-month implied volatility on the Bloomberg Dollar Spot Index this week sank to its lowest level since December, a sharp retreat from the March spike that followed the onset of the Iran war.The calm is reinforcing one of this year’s defining market themes: the durability of the US stock market and subdued currency volatility are encouraging investors to pile into carry trades, which profit from interest-rate differentials and tend to perform best when exchange rates and risk appetite remain stable. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe drop in dollar volatility is “remarkable,” Francesco Pesole, a currency strategist at ING Bank NV, said Friday. “AI-fueled equity resilience still appears to be anchoring currencies and helping sustain a self-reinforcing low-volatility, carry-trade environment.” The popularity of the trade will remain, even amid tech stock corrections like Friday’s chip-stock tumble, he added.Traders have leaned into that backdrop. According to a recent Bank of America survey, global portfolio managers are the most bearish on the yen, a common funder of currency carry trades, in about four years. Leveraged funds, asset managers and other speculators, meanwhile, hold more than $40 billion of net long positions in the greenback, according to the Commodity Futures Trading Commission data through July 7. An updated snapshot of positioning is due later Friday.“Middle East escalation is not dominating cross-asset pricing because energy markets absorbed the initial shock,” Geoffrey Yu, senior EMEA market strategist at BNY, wrote this week. “Growth is being verified, FX carry is working and earnings are supporting the cycle.” He warned, however, that geopolitical risks are being underpriced.For now, the strategy continues to enjoy a seasonal tailwind. Analysts at Citigroup Inc. including Luis Costa, Alexander Rozhetskin and Bhumika Gupta noted Friday that July tends to be historically favorable for carry trades from a risk-return perspective. They cautioned that August often marks a turning point as macro volatility picks up, leaving increasingly crowded carry positions vulnerable to unexpected headlines.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.