Treasury Selloff Fuels Dollar Bullish Bets, Sterling Takes the Hit

Deep News17:16

On Wednesday, U.S. Treasuries came under selling pressure, prompting options traders to increase their long positions in the dollar, with sterling emerging as the preferred vehicle for betting on greenback strength.

Throughout Wednesday, dollar buying in the options market was robust, as the yield on the U.S. 10-year Treasury climbed from 4.99% to 5.13%, reinforcing demand for the U.S. currency.

Data from the Depository Trust & Clearing Corporation (DTCC) showed that sterling bore the brunt of this wave of capital flows, with nearly three-quarters of plain vanilla option notional principal positioned for a weaker pound against the dollar.

The one-week risk reversal for the dollar spot index widened to 40 basis points, with call option premiums exceeding put premiums — the strongest dollar-bullish signal since late April.

Meanwhile, the one-month risk reversal reached its most dollar-positive level since July.

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