Dollar's Worst Slide Since 2017 Has Further To Go, Options Show

The dollar is heading for its weakest annual performance in eight years, and the options market is signaling that traders are preparing for more downside in the final sessions of 2025.

The Bloomberg Dollar Spot Index fell 0.3% on Tuesday to the lowest level since Oct. 3. The gauge is down 8.2% this year, putting it on track for the biggest slide since 2017. Another modest dip would push the currency to its worst year in at least two decades.

Expectations that Federal Reserve monetary policy will diverge further from that of other major central banks, as well as seasonality patterns, have kept the greenback under pressure this month. The Canadian dollar climbed to its highest since August, the Australian dollar touched a three-month high and the Swedish krona hit levels last seen in February 2022.

Options pricing is also turning more negative. So-called risk reversals, which depict market positioning and sentiment, show that options traders are the most bearish in the dollar in three months. Data from the Depository Trust & Clearing Corporation shows that the euro and the Australian dollar have been the main vehicles for expressing those bearish dollar views in recent sessions.

"The USD outlook remains comfortably negative," wrote Ipek Ozkardeskaya, senior analyst at Swissquote, in a note published Tuesday. "Bullish calls on the dollar are rare."

Ozkardeskaya said that concerns around fiscal discipline and trade tensions are also acting as headwinds. Still, she warns the dollar is vulnerable to a sharp rebound if upcoming data releases prompt a hawkish reassessment of Fed expectations.