Paying Most Since ?08 on Dollar Hedges Works as Currency Plunges
By Callie Bost
(Bloomberg) — Anyone wondering why you?d pay the highest prices since 2008 to hedge against declines in the dollar found out last week when the currency slid the most in more than three years.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, slid 2.2 percent last week. The rout came as options on the PowerShares DB US Dollar Index Bullish Fund reached the most since December 2008 relative to those on the SPDR S&P 500 ETF Trust, one-month data compiled by Bloomberg show.
Shares of the U.S. currency?s exchange-traded fund plunged the most in five years on March 18 after the Federal Reserve cut its projections on where interest rates will be by the end of this year and cited softer economic growth. Peter Cecchini at Cantor Fitzgerald LP recommended clients buy bearish options on the ETF before the U.S. central bank?s decision, then sell them after.
?I knew that if the Fed had come out slightly more dovish than expected, the dollar would snap down because so many people are long,? Cecchini, the New York-based chief strategist and global head of macro equity derivatives at Cantor Fitzgerald, said by phone March 19. ?It?s run too far, too fast.?
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