Investment firms wager on anticipated NT dollar appreciation to replicate its rise
Hedge Funds Boost Betting on South Korean Won Amid US Dollar Decline
Hedge funds have intensified their positions in the options market, predicting that the South Korean won will mirror the New Taiwan dollar's recent rally against the greenback. The surge in US dollar-won option trading volumes last week, according to data from the Depository Trust & Clearing Corp (DTCC), reflects growing speculation about potential currency discussions between the US and South Korea.
Barclays Bank PLC reports increased demand for put options from hedge funds, signaling a bearish bias on the pair. The latest surge in the NT dollar has rekindled investor confidence in Asian currencies, with an index of Asian currencies climbing towards its highest level since last October. This comes as US President Donald Trump's tariff threats and concerns over a widening US fiscal deficit have diminished the appeal of the US dollar.
Investors view the won as a likely candidate for comparable gains due to South Korea's burgeoning trade surplus with the US. This puts pressure on Seoul to tolerate a stronger currency, leading some observers to compare the situation to the US's monitoring of Taiwan.
Last week, demand for US dollar-won put options with notional sizes over US$60 million outpaced call options on DTCC by a margin of 3:2, indicating a strong inclination towards bearish bets on the pair. The premium to hedge against a downside on the US dollar-won pair compared with the upside has reached a 21-year high.
Hedge funds' increased interest in USD-won options suggests a keen focus on the potential shifts in US-Asia trade dynamics and a key hedge against declining US dollar strength. The recent volatility in the US Treasury market, with the ongoing sell-off in long-end US Treasuries, has only served to heighten bearish positioning by hedge funds indirectly.
The increased hedge fund activity in USD-won options is likely to yield greater volatility in the won’s value, affecting trade and investment decisions in South Korea. Depending on the direction of hedge fund bets, the won could face depreciation pressure if the US dollar gains in the short term. On the other hand, a potential sustained decline in the US dollar over time could cause the won to strengthen.
The South Korean monetary authorities may be forced to intervene to stabilize the won in response to hedge fund bets and currency volatility. Meanwhile, companies with dollar-denominated liabilities or revenues would face increased foreign exchange risk, potentially impacting their hedging strategies.
The ongoing activity underscores the broader risks and opportunities facing emerging markets and the US dollar amid economic policy uncertainty and geopolitical tensions. Strong hedge fund bets on USD-won options indicate a degree of cautious optimism or defensive positioning, depending on market expectations for币种 exchange rate dynamics between the US dollar and the South Korean won.
- With the US dollar's decline, hedge funds are focusing on the potential shifts in US-Asia trade dynamics and are using technology to invest in South Korean won through USD-won options, which could lead to increased volatility in the won's value.
- As hedge funds increasingly bet on a sustained decline in the US dollar, they are also potentially taking a defensive position by investing in technology-driven markets such as South Korea, where the won could strengthen over time.
