Dollar Rally Has Legs as Traders Bid Up Options to a 15-Month High

10 Aug 2018

Dollar Rally Has Legs as Traders Bid Up Options to a 15-Month High

(Bloomberg) -- Tally up one more reason to buy the world’s reserve currency.

As Turkey’s financial markets lurched closer to a meltdown on Friday, brokers charged the biggest premium since April 2017 for three-month call options on the dollar relative to puts, according to a gauge weighting the currency against major peers.

In other words, traders are betting the greenback’s bull run will continue, even after rising about 6 percent since March.

The mayhem in the Turkish lira spurring a global sell-off, from emerging-market currencies to European bank stocks, comes as trade tensions intensify while America’s economy powers ahead -- developments that have boosted the U.S. exchange rate.

“The dollar marches on, as the currency looks to be ‘winning’ the trade and sanctions wars, even though time will tell whether this will be a pyrrhic victory,” Stefan Koopman, a market economist at Rabobank in Utrecht, the Netherlands, said in a note Friday.

Weekly U.S. jobless claims published on Thursday fell, staying close to historic lows. Core producer prices rose 0.3 percent in July.

The PPI data suggest that “pipeline inflation pressures are building even without the assistance of tariffs,” Koopman said. “Both figures will only give yet another boost to the Fed’s confidence” over its tightening trajectory.

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