Greenback Bets Shift from Drop to Drip

At the outset of the year, many investors predicted the greenback (or U.S. Dollar) would slide downward in 2021 with global growth outpacing the domestic recovery.

In actuality — and much to the chagrin of currency traders who feed off volatility — America’s impressive vaccine rollout and economic recovery have kept the currency remarkably stable.

The Hold Steady

Two key metrics point to relative stability for the dollar: the WSJ Dollar Index has gained roughly 1.4% this year and the Japanese yen, considered a safe haven for uncertain investors, has lost over 5% against the dollar.

In the absence of volatility, some traders are using a strategy called a “strangle,” which allows them to collect a premium and profit if the underlying currency remains steady:

  • Certain hedge funds have bought net short positions against the dollar in recent weeks, according to Scotiabank and the Commodity Futures Trading Commission, but at a significantly lower amount than late 2021.

“Foreign exchange has not been the trending market most clients were hoping for,” Kristen Macleod, co-head of global foreign exchange sales at Barclays, told the Wall Street Journal. “Nobody is calling for the demise of the dollar as they were in the beginning of 2021, but we are starting to enter a phase where you can see the dollar dripping lower.”

These Swings Are No Joke: For volatility, traders know where to turn. Dogecoin, the viral cryptocurrency which was started as a joke, has climbed in value by 12,000% this year. Look out for more volatility this weekend as Elon Musk — the world’s richest person and a Dogecoin booster — hosts Saturday Night Live.

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