Following the US presidential election, the trading of currency options experienced an unprecedented surge, reaching over $160 billion in contracts on a single day, marking a record since 2013, as reported by the Depository Trust & Clearing Corporation. This spike in activity was notably evident in euro options, which saw a fourfold increase compared to recent averages, and in the trading of the Chinese renminbi on the EBS platform, which set a new record.
Market participants primarily initiated new positions, betting on a strengthening dollar in response to Donald Trump's victory. The anticipation of Trump's policies, aimed at reducing taxes and increasing trade tariffs, is expected to drive inflation and maintain higher interest rates, contributing to the dollar's rally. This development led the Bloomberg Dollar Spot Index to climb to a one-year peak, although it later adjusted downwards.
The euro faced significant losses, attributed to concerns that US trade tariffs could adversely impact the region's economic growth and prompt the European Central Bank to lower interest rates more aggressively than the Federal Reserve. Additionally, the CME Group reported a substantial increase in foreign exchange volumes, with $275 billion traded across its currency products on the day following the election, more than doubling the average daily volume in October. This included heightened activity in several currency pairs, notably the Mexican peso and the euro.
Analysts, including Nordine Naam from Natixis, predict the dollar's continued strength against most currencies in the near term, driven by the anticipation of trade tensions and forthcoming US economic support measures.
Source: BNN Bloomberg