U.S. dollar fears grow as traders increase hedges to five-year high

Demand for hedging against potential dollar declines has jumped to a five-year high as the Trump administration’s tariff policy threatens to sap U.S. economic exceptionalism and undermine the greenback.

An index measuring three-month risk reversals — or the spread between call and put options — on the dollar against 12 of its major peers has dropped to the lowest level since the depth of the global pandemic in March 2020, according to data compiled by Bloomberg.

The gauge fell below zero for the first time in five years last week, indicating greater demand for put options that would benefit from a weaker dollar than for call options that would gain from a stronger one.

“The disdain to hold dollars remains front and center to markets,” said Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne. “The questions being asked of the dollar are not one-day affairs either, and represent potential major structural changes afoot.”

The Trump administration’s policy of slapping punishing tariffs on the country’s trading partners is chipping away at investor confidence in the US currency as the cornerstone of the global financial system. The Bloomberg Dollar Spot Index has fallen more than 3% this month and touched the lowest level since October on Monday.