EUR Benefits from US Policy Uncertainty
Commerzbank's Michael Pfister has analyzed EUR/USD options and found that risk reversals turned positive again after comments from the US Treasury Secretary. This shift in risk reversals is consistent with a pattern observed by Pfister, where the Euro tends to benefit whenever there are doubts over US policy.
Risk reversals initially returned to their pre-Liberation Day levels following the start of the war in Iran, indicating that market participants were hedging against further USD appreciation due to the disruption to oil and gas supplies affecting the euro area more significantly. However, as the conflict lasted or ended, risk reversals moved towards slightly negative levels amid very low implied volatility.
Pfister suggests that this period from early April last year to the end of February may have been an exception rather than the rule. He points out that the past few days' data indicate a return to positive EUR/USD risk reversals following the US Treasury Secretary's announcement, which he believes reflects sustained doubts about US policy benefiting the Euro.