U.S. Firms Hedge Euro Exposure Amid Currency Volatility

American businesses are increasing their use of euro put options to protect their European revenue because they believe the euro has reached its peak value. The euro reached its highest level in three years because of U.S. aggressive tariffs and dollar weakness which led to a three-year peak of the euro-dollar pair.

Options pricing data indicates that market participants have lost faith in euro price appreciation. Companies are buying euro put options because these financial instruments increase in value when the euro depreciates to protect their cash flows from negative exchange rate effects. The euro's rising value shows signs of slowing down because U.S. stock prices are recovering and economic indicators are improving.

The euro faces difficulties surpassing $1.20 according to traders who observe its current price at $1.16. Euro-dollar options trading volume decreased to $803 billion during June after reaching $907 billion in April. Corporate demand for protection against currency declines has grown during the last three weeks which has led to some dollar short positions being unwound.

The euro revenue companies are expressing their concern about losing their entire earnings by Eric Merlis of Citizens. The need for currency risk hedging has increased because firms want to protect their repatriated earnings from a weaker euro as they approach earnings season.