Rising Tariff Risks Hamper Currency Trading Amid Market Uncertainty
Hedge funds and currency traders across Asia face uncertainty in their trading strategies due to escalating tariff risks, potential technological disruptions, and approaching holidays, sources indicate.
Amidst a barrage of fluctuating headlines on US tariffs, the dollar exhibited mixed performance against major currencies during the week. Hedge funds, known for their market sophistication, grapple with a lack of consensus on optimal trading approaches, as reflected in the volatile foreign-exchange options market.
With a surge in option requests lacking a clear pattern, "We've seen new directional trades as well as unwinds of existing ones," remarks Mukund Daga, head of foreign-exchange options for Barclays Bank Asia.
The apprehension over trading direction follows a marked increase in hedge fund demand for options favoring a weakening US dollar against the yen and Swiss franc, according to Sagar Sambrani of Nomura.
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"Markets are perplexed about whether to liquidate bullish dollar positions," Vishnu Varathan of Mizuho Bank observes. "There's little conviction in any direction."
Upcoming policy decisions by the Federal Reserve and European Central Bank, coupled with the Lunar New Year, are amplifying market jitters while diminishing liquidity. Consequently, currencies remain susceptible to sharp movements based on news headlines.
"Market activity is dwindling," states Alvin Tan of RBC Capital Markets.
The dollar initially strengthened in Asia Tuesday after President Trump and Treasury Secretary Bessent reignited tariff concerns.
Nathan Swami of Citi notes that traders are predominantly "looking to own short-dated options," indicating heightened anxiety over headline risks during the extended Lunar New Year break.
Nick Twidale of AT Global Markets adds that trading volumes have declined significantly as uncertainty spreads. "Many are hesitant to trade right now," he states.