Energy and political risks deal a double blow: the euro falls to a near two-month low, with options traders placing 60% of their bets on further weakness.

Note that the euro fell to a near two-month low against the dollar, after options traders ramped up bets on further euro weakness following the Federal Reserves latest rate rise. The euro weakened for a third consecutive session on Wednesday, depreciating 0.2 per cent to $1.1426. Options metrics suggest sentiment is increasingly turning bearish, with positioning for the year-end approaching levels last seen in mid-August. The move comes as markets price in further Fed tightening, eroding the policy divergence theme that supported the euro throughout the summer. Persistently high energy prices have added another headwind, weighing on the eurozones growth outlook even as oil prices head for a sixth straight session of declines. Euros slide deepens, year-to-date low in sight The shift accelerated after last weeks Fed decision, according to data from the Depository Trust & Clearing Corporation. After the European Central Banks latest rate rise, options exposure was almost evenly split between bulls and bears, but since the Fed meeting about 60 per cent of total notional principal has been positioned for euro weakness. Joachim Nagel, a member of the ECBs governing council, said officials might have to raise interest rates to a level that restrains growth if high energy prices persist. They might have to enter mildly restrictive territory, he said. The contrast with the US economy continues to support the dollar. While tightening by other major central banks may limit the scope for the dollar to reach a new cyclical high, Elias Haddad, head of global markets strategy at Brown Brothers Harriman in London, said the US growth advantage over other major economies leaves the dollars risk skewed to the upside. The DTCC data also show euro hedging is extending further out along the curve. Since the Fed meeting, the weighted average maturity of bearish euro exposure has lengthened by more than 10 per cent, while lower strike prices have attracted more interest. Bearish euro bets increase after ECB meeting Political uncertainty is also weighing. France faces another difficult budget battle in a fractured parliament, while Chancellor Friedrich Merzs CDU is dealing with the fallout from its worst-ever result in a German state election. Matthew Hornbach, head of global macro strategy at Morgan Stanley, said higher US interest rates and an adverse political risk premium for the euro made it harder for the single currency to gain against the dollar. Deutsche Bank, by contrast, sees limited scope for further euro declines. Its analysts expect the euro to remain range-bound, arguing that resilient global growth and significant dollar tail risks should limit euro weakness, while Fed rate rises and high energy prices cap the upside.