FX traders are gambling in midst of a trade war by establishing a record bet against the dollar versus Japan’s yen, more than halving bets in favour of the world reserve currency, and holding three other bets against it versus the pound, Brazil’s real – and a Mexican peso which is at the heart of the dispute.

Usually traders adopt a defensive stance in risk averse times, reducing bets altogether and holding currencies they deem safer. Because the dollar is also the global reserve currency it is usually well supported. Yet in these very uncertain times traders have turned against the U.S. currency.

While it is logical for the asset at the core of a problem to be sold, the dollar rose during the global financial crisis and the banking crisis in 2023 despite its epicentre being in California.

The dollar has proved to be safe on numerous occasions and this year, even though traders have sold aggressively, it has barely moved in reaction. The dollar index which ended last year at 108.49 is currently 107.33 and was 100.15 in September before markets began to factor in risks associated to the policies of a Trump presidency.

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