The euro has retreated to its weakest level against the U.S. dollar in nearly two months. Following the Federal Reserve's rate hike, options traders have ramped up their bets on further depreciation of the euro. The currency is poised for a third consecutive daily decline, having slipped as much as 0.4% to $1.1409 per euro.
Indicators from the options market show that investor sentiment is turning increasingly bearish, with positions betting on a weaker euro by year-end approaching their highest level since mid-August. As the market further prices in expectations of continued policy tightening by the Fed, the monetary policy divergence trade between the U.S. and Europe—which had supported the euro for much of the summer—is now losing momentum.
Persistently elevated energy prices are also adding additional pressure to the eurozone's growth outlook, even as oil prices are set to decline for a sixth straight session. Data from the Depository Trust & Clearing Corporation (DTCC) reveals that bearish euro positions have accelerated since the Fed's rate decision last week. Following the European Central Bank's most recent rate increase, options positioning was broadly balanced; however, since the Fed's meeting, roughly 60% of the notional value in options has been tilted toward a weaker euro.
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