Currency traders are dumping dollars in options bets, opting for euros instead.

Gate News bot message: In light of the unpredictable nature of U.S. policy and the risks brought by the global trade war, traders are avoiding the U.S. dollar, and the position of the euro in the global currency Options market is also rising.

The trading volume has changed accordingly. According to data from the Depository Trust & Clearing Corporation (DTC) for the first five months of this year and the last five months of 2024, approximately 15% to 30% of contracts for the US dollar against major currencies have been converted to euros. In addition, there are signs that the euro is being used as a safe-haven asset (traditionally the role of the US dollar), as well as a bet on market volatility.

Despite the dominance of the dollar in the currency market with a daily trading volume of up to $7.5 trillion, this may be early evidence of greater competition for the dollar as the global reserve currency. After the dollar faced its largest drop in years, traders have shunned the dollar, with the euro appearing to be the main beneficiary as the eurozone markets benefit from billions of dollars in government stimulus programs.

Oliver Brennan, an options strategist at BNP Paribas, stated: “If we shift to an environment where European capital flows are more important, then we may turn to an environment where the euro drives everything.”

So far this year, the euro has risen 11% against the dollar, reaching its highest level since 2021, breaking through $1.16. Meanwhile, the dollar has declined against all major currencies, falling more than 7% to its lowest level since 2022. This is undermining confidence in U.S. assets.

Moreover, this wave of decline may not be over yet. Hedge fund titan Paul Tudor Jones has just predicted that the dollar will fall another 10% in the coming year. The risk reversal indicator (which measures options sentiment) shows increasing bearish sentiment for the dollar against the yen, while bearish sentiment for the euro against the yen has weakened—this is a “very important signal” for Brennan regarding the euro’s trend.

As the market questions the stability of the US dollar, the implied volatility of the euro against the yen seems to be at its calmest level in nearly four years compared to the volatility of the dollar against the yen.

“The market believes that under negative market shocks, the volatility of the dollar against the yen will be greater than that of the euro against the yen, which is in stark contrast to how the market has responded to such events in the past,” Brennan said. “If this is the case, it means the market views the euro as a safer asset than the dollar.”