Options Signal Dollar Strength Is Fading as Risks Pile Up

Currency options markets are signaling the dollar will come under renewed pressure, just as a wave of risks threatens to weigh on the greenback heading into August.

One-month risk reversals in the Bloomberg Dollar Spot Index — a key measure of sentiment — have shifted into negative territory for the first time in two weeks, favoring protection against dollar weakness. The repricing reflects expectations that bearish forces may soon dominate again.

Several macro catalysts are in play. Traders are watching for a dovish signal from the Federal Reserve at its July meeting, alongside concerns about policy unpredictability in Washington and the central bank’s independence. Fresh tariff announcements and continued weakness in US economic data could further erode dollar sentiment.

“We could see a weaker dollar because we had a peak in short-term rates and a steepening of the long-end,” Peter Kinsella , head of foreign-currency strategy at Union Bancaire Privee Ubp SA in London said in an interview with Bloomberg TV. “ Trump is adding uncertainty with pressure on” Fed Chair Jerome Powell , he said, adding that the dollar probably hasn’t bottomed out yet.

Flow data supports the shift. The latest notional volumes from the Depository Trust & Clearing Corporation show increased demand for downside dollar exposure across major peers in the past two weeks, pointing to a broader return of bearish conviction.

What’s notable is that the so-called volatility skew has turned more decisively negative than during June’s rebound, suggesting options traders are positioning for the prevailing downtrend to resume.

Technically, the US currency remains locked in a bearish trend channel, with its latest rebound echoing a pattern seen throughout the year — a rally of around 2%, followed by a loss of momentum.

The advance was capped once again by the 55-day moving average, a key resistance level that has repeatedly acted as a ceiling. The continued failure to break higher reinforces the view that dollar strength is still being treated as a fade, not the start of a breakout.