Core Viewpoint - Traders are optimistic about the offshore Chinese yuan, with its spot price reaching a new high for 2025, marking the fifth consecutive trading day of positive sentiment [1] Group 1: Market Sentiment - The one-month dollar/offshore yuan risk reversal reported at 0.47% on Wednesday, continuing a decline for five days, potentially reaching the highest level of yuan bullishness since May 28 [1] - The prices for put options betting on a decline in the dollar/offshore yuan are currently higher than those for call options, indicating a shift in trader sentiment [1] - Over the past few days, the premium for put options relative to call options has expanded, reflecting increased bearish sentiment towards the dollar [1]

Core Viewpoint - Currency options traders have reached a historical peak in bearish sentiment towards the US dollar, with the dollar index falling below 100 again [1][3]. Group 1: Market Indicators - The "one-year risk reversal" indicator has dropped to negative 27 basis points, marking the most pessimistic level since Bloomberg began tracking this data in 2011 [3]. - The risk reversal reflects that put options for the dollar are more expensive than call options by 27 basis points, indicating traders are paying a higher premium to hedge against the risk of dollar depreciation over the next year [3]. Group 2: Economic Factors - The US government's economic policy inconsistency has led to increasing doubts about the predictability of government decisions and expectations for US economic growth [3]. - Moody's downgraded the US sovereign credit rating from Aaa to Aa1 due to rising government debt and interest payment ratios, further pressuring the dollar [5]. - Analysts express concern over the lack of political will to address the deteriorating fiscal outlook, suggesting that the narrative of a weakening dollar is far from over [5]. Group 3: Market Sentiment - Investors and forex strategists believe the dollar has been overvalued for years, but previous economic growth in the US has thwarted short positions on the dollar [5]. - Recent data shows that the dollar index has declined approximately 10.6% from its peak in January [5]. - Speculators' net short positions on the dollar have reached $17.32 billion, nearing the highest level since July 2023 [5].

Group 1 - The dollar index declined by 0.4%, with traders skeptical about the sustainability of the recent dollar gains despite easing trade tensions [1] - As of this week, nominal value of dollar short positions totaled approximately $61 billion, exceeding $55 billion in dollar long positions [1] - Optimism regarding a trade truce between the US and China led to the dollar's best performance since the US presidential election, rising by 1% on Monday [1] Group 2 - Many banks, including Nordea and Rabobank, believe that despite the recent rebound, the dollar will decline in the long term, raising their forecasts for the euro and yuan [5] - Deutsche Bank's global head of foreign exchange strategy expressed caution regarding US assets due to concentrated risks, despite a more conciliatory US policy direction [4] Group 3 - The options market remains bearish on the dollar, with a risk reversal indicating long-term bearish sentiment, although slightly lower than the previous week [7] - Macquarie Bank strategists noted that the damage from the April tariff turmoil will limit the dollar's gains, predicting a return to depreciation [7]