The foreign exchange options market suggests "selling the United States" or taking a temporary break, with the expectation that the pressure on the US dollar will ease temporarily.

Although the US dollar index is trading at a three-year low, traders in the foreign exchange options market are generally betting that the crazy selling spree sweeping through the world's reserve currencies will significantly slow down in the coming weeks - meaning that the selling pressure on the dollar will ease and the pessimistic sentiment of "selling the US" will also greatly ease. With the US dollar index weakening for the fifth consecutive month, pessimism in the foreign exchange options market reached extreme levels in May. Now, with only 6 days left until the next Federal Reserve interest rate decision, the options market is signaling relative calm. The "Bloomberg Dollar Spot Index" indicator of bullish and bearish foreign exchange option price spreads for the 1-week and 1-month terms closed on Wednesday at the lowest bearish point in over two months. However, this calm did not immediately manifest on Thursday. Due to confirmation in statistical data reports that US producer price inflation is moderate and the cooling of the US labor market is limited, the spot price of the dollar fell to its lowest point since April 2022. For seasoned trader Brent Donnelly, this means that the continuous selling of the dollar will get some respite at least until the next round of economic data is released. "Bears may have to wait another month to see their expected 'dollar doomsday scenario' play out in the real world," emphasized Brent Donnelly, president of Spectra FX Solutions. "The economic data for June may turn out well." The US dollar index is at the forefront of the "selling the US" trade sparked by tariff concerns and has already fallen over 8% year-to-date. The 1-week and 1-month risk reversal indicators suggest that there will still be volatility in the future, but not at the extreme bearish levels seen in April and May. Nevertheless, foreign exchange traders continue to prefer paying higher premiums to position themselves in bearish dollar options rather than paying premiums, as in 2022-2023, to bet on bullish dollar rebound options. However, the premium for bearish options relative to bullish options has significantly narrowed in recent times. The US economy has shown unexpected resilience under the impact of Trump's tariffs. Last week's non-farm payroll data and this week's CPI and PPI confirm that US economic and price growth momentum is orderly slowing down - which means that the expectations of a "soft landing" for the US economy and the expectations of a rate cut by the Federal Reserve have not changed significantly. The market generally expects the Fed to cut rates only twice this year, explaining why foreign exchange traders are stepping back from their extreme bearish positions of the past two months. The continued decline in foreign exchange volatility over the past month has also partially suppressed extremely bearish sentiment. Although the pace of selling may temporarily slow down, the general consensus on Wall Street is still that the weakening of the dollar is the "path of least resistance." Both options and forward markets point to further weakness in the US dollar for the remaining time in 2025, but data from Bloomberg compilation shows that the interviewed investment institutions unanimously expect the dollar to remain largely stable in the next six months. "This is not just about a weak dollar, but also about a loss of confidence in investing in the US," said Harris Kurshid, chief investment officer at Chicago-based Karobaar Capital. "The threat of tariffs, softening data, and fiscal deficit noise are forcing macro traders to reprice. The foreign exchange market is beginning to treat the US as an emerging market: high risk, high noise, lacking anchors." Jeffrey Gundlach, CEO of global asset management firm DoubleLine Capital and known as the "new bond king," stated on Tuesday that with Trump's series of radical policies leading to the gradual collapse of the "American exceptionalism," the long-term devaluation of the dollar has almost become a certainty. He expects international stocks, represented by emerging markets, to continue outperforming the US stock market. "I believe that the current trading strategy is not to hold US stocks, but to hold stocks in other parts of the world. This strategy is clearly working," Gundlach pointed out in an investor webcast. "The dollar is now at the beginning of what I see as a long-term bear market." Wall Street giant Morgan Stanley recently issued a warning on the outlook for the dollar, predicting a significant depreciation of the dollar over the next year as the market assesses the disruptive trade policies of the Trump administration, along with the possibility of a resumption of the Federal Reserve interest rate cut cycle in December. The dollar index is expected to plummet by 9% in the next year, possibly reaching levels unseen since the early days of the pandemic.