As heightened political instability in the United States triggers a market rush for bearish hedges, dollar traders are betting on a deeper decline at record costs. The premium on short-term options that profit from a weaker U.S. dollar has expanded to its highest level since data became available in 2011. The bearish sentiment is not confined to the short end—investor pessimism regarding the dollar's long-term prospects has reached its highest level since at least May 2025. Although the dollar index edged higher on Tuesday, its preceding three-day losing streak was the largest since the U.S. tariff turmoil of last April. Should the downtrend resume as suggested by option prices, the dollar could fall to its lowest level in four years. Jesper Fjarstedt, a senior analyst at Danske Bank, stated, "The unpredictable U.S. political situation is undoubtedly negative for the dollar. Developments over the past week have prompted the market to reprice political risk premiums." So far this year, the dollar has been the worst performer among the G10 currencies, indicating a shift in how investors view this traditional safe-haven asset. Concerns over rising U.S. fiscal deficits, sanctions risk, trade friction, coupled with an accelerated investor shift into gold and other reserve assets, are collectively pressuring the dollar. Behind this dollar move is not just a shift in sentiment, but also substantial capital flows. On Monday, trading volume through the Depository Trust & Clearing Corporation (DTCC) reached the second-highest level on record, surpassed only by the sell-off on April 3, 2025. On a four-day rolling average basis, market participation has climbed to an all-time high. Furthermore, market positioning is highly one-sided. Since last Thursday, approximately two-thirds of euro and Australian dollar option trades have been bets on further dollar weakness. Additionally, speculation that the U.S. might collaborate with Japanese monetary authorities to set a floor for the persistently weakening yen is exacerbating the dollar's downward trajectory. It was reported that the New York Fed contacted financial institutions on Friday to inquire about the yen exchange rate, which Wall Street interpreted as a sign that the Fed is preparing to assist Japanese officials in directly intervening in the currency market to support the yen. The market is now speculating that U.S. and Japanese authorities might undertake a rare coordinated intervention to prevent further yen depreciation. Bank of America Securities suggested that the U.S. might aim to enhance its trade competitiveness by pushing the dollar exchange rate lower. In this context, market anxiety is impacting hedging costs—one-week dollar volatility has surged to its highest level since early September. Simultaneously, the "butterfly spread," an indicator used to gauge demand for protection against extreme price swings, has risen to a seven-month high, showing that traders are preparing for the dollar to break further out of its recent trading range.