Euro Tumbles as Options Market Bets Heavily on Further Weakness

The euro has fallen to near two-month lows against the US dollar due to increased bets on further weakness, according to options market data.

This week, the euro declined for a third consecutive session, reaching $1.1426 per euro and approaching its year-to-date low of $1.14. Options indicators show that 60% of positions are betting on euro declines before year-end, with traders shifting their bets after the Federal Reserve's latest rate hike.

The US dollar has gained an interest rate differential advantage over the eurozone due to sustained high energy prices and the Federal Reserve's rate hikes. The European Central Bank is facing a dilemma as high energy prices force policymakers to consider further monetary tightening, while excessive tightening could drag the eurozone economy into a deeper slowdown or recession.

Elias Haddad, global markets strategy head at Brown Brothers Harriman, believes that even if other major central banks tighten in tandem, the dollar will maintain its firm-to-stronger trajectory due to America's growth advantage.