Currency traders are increasingly turning to the euro in the options market, reducing reliance on the dollar due to unpredictable U.S. policies and rising global trade tensions. Data from the Depository Trust & Clearing Corporation shows that 15% to 30% of dollar-based contracts have shifted to euro-based ones for the first five months of this year versus the final five months of 2024. This signals growing interest in the euro as both a haven and a tool for speculative bets.
Despite the dollar's dominance in the $7.5 trillion-a-day FX market, the euro is gaining ground, supported by strong government stimulus in Europe. BNP Paribas strategist Oliver Brennan notes that euro pairs are starting to lead market trends, reflecting Europe’s improving economic narrative.
The euro has surged 11% against the dollar this year, reaching levels not seen since 2021, while the dollar has weakened against all major currencies. Hedge fund manager Paul Tudor Jones even forecasts another 10% drop in the dollar over the next year.
Options pricing suggests traders see more stability in the euro-yen pair than in dollar-yen, a reversal from past patterns. Implied volatility is lower for euro-yen (below 9%) than for dollar-yen (near 11%), making euro-based bets more attractive and cost-efficient.
This shift is also evident in metrics like 10-delta fly spreads, showing rising demand for significant moves in euro-yen over dollar-yen. Although the dollar has faced similar doubts before, recent U.S. tariff policies have damaged confidence further.
ECB President Christine Lagarde has encouraged efforts to boost the euro's global role, and with Europe offering more perceived stability and growth potential, the common currency may continue to gain influence in global markets.