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  • Risk reversals hit 3.5-month highs on increased call demand.  
  • Call option gives holder a right to buy the underlying asset at predetermined price on or before a predetermined date.  

One-month risk reversals on USD/JPY, a gauge of calls to puts, is currently trading at -1.112 – the highest level since April 24.  

The negative number indicates the implied volatility premium for calls (bullish bets) is lower than that for puts (bearish bets).  

The current reading, however, is the highest since April 24, meaning the bearish bias is weakest in over three months.  

Put simply, investors are adding bets to position for strength in the US dollar. After all, the US Federal Reserve (Fed) delivered a not-so-dovish interest rate cut on Wednesday.  

Notably, Fed’s President Powell referred to the rate cut as a mid-cycle adjustment, dashing hopes of further easing over the coming months.