Global currency traders are paying the highest cost on record to hedge against a weakening US dollar, as political uncertainty in Washington has sparked a surge in bearish expectations for the greenback.
The negative sentiment is not just focused on the short term. Investors are also showing their most pessimistic view of the dollar’s longer-term prospects since at least May 2025, reflecting a structural shift in how markets value the world’s main reserve currency.
While the US Dollar Index was volatile on Tuesday, the previous three-day decline was the sharpest since the US tariff escalation in April last year. If the selling pressure continues as projected by the options market, the US dollar risks falling to a four-year low.
The pressure is also reflected in the cost of hedging, with one-week US dollar volatility surging to its highest level since September. At the same time, demand for protection against unexpected price moves has increased, signaling that the market is ready for a further breakout from the current trading range.
This situation is exacerbated by speculation that the US administration may work with Japanese authorities to curb the yen’s decline, thus adding pressure on the US dollar. For global investors, the combination of US policy uncertainty, fiscal concerns and a shift to alternative assets such as gold is further reinforcing the narrative that American political risks are now clearly ‘dollar-negative’.
