The US dollar gained strength after the Federal Reserve’s hawkish comments this week. Hedge funds and currency traders aggressively bought USD call options on Wednesday and Thursday after anti-inflation remarks from new Fed Chair Kevin Warsh.
According to BofA’s Tobias Jungmann, large-scale buying of dollar call options was seen across major G10 currencies, while Barclays’ James Swindell said the strongest demand came in EUR/USD and GBP/USD options.
Traders are using options markets to build bullish US dollar positions as foreign-exchange volatility remains relatively low. Markets are increasingly betting that US interest rates could stay higher for longer or even rise further.
Meanwhile, the Japanese yen weakened to around 161.80-161.81 per US dollar, moving close to 162.02, a level that would mark its weakest point since 1986.
The Bank of Japan raised interest rates to 1.0% on June 16-17, the highest level since 1995, but the move failed to support the yen as the wide US-Japan yield gap and rising US Treasury yields continued to pressure the currency.
Japan’s Finance Minister Katayama warned that authorities are prepared to take “bold action” against speculative currency moves. Japan had already spent a record ¥11.73 trillion on FX intervention in late April and May, while speculative short yen positions have climbed to their highest level since July 2024. Markets remain alert for possible intervention as the yen trades near multi-decade lows.
