US-China trade war: market complacent in underpricing ‘no deal’
Options or swaps said to still be cheap to hedge if tensions persist
The foreign exchange market has for months underpriced the risks of the US and China failing to strike a trade deal, and is now grappling with rising volatility in yuan-related markets following the US decision to raise duties on its competitor, say market participants.
On May 10, the US imposed 25% tariffs on $200 billion of Chinese imports, up from the previous 10%. However, the market had been underpricing the risks of a ‘no deal’ in the past few months.
The monthly average daily volume
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