Asia Hedge Funds Stumped on Tariff, DeepSeek Currency Whiplash

(Bloomberg) — Rising tariff risks, a potential Sputnik moment in tech and looming holidays have left hedge funds and other currency traders across Asia unsure of just what bets to make, according to market participants.

Traders have been unnerved by a series of rapidly evolving headlines about US tariffs and questions about how recent progress by Chinese startup DeepSeek will impact lofty US tech valuations. The dollar strengthened across the board on Tuesday, but has had a mixed performance this week against other major currencies.

“Markets are befuddled whether or not to unwind the Trump trade or put it back there,” Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd., said of strategies like buying the dollar. “It feels like everything is in a wash, you can’t tell any direction and there’s no conviction of trade.” 

Even sophisticated investors like hedge funds are struggling to agree on what is the best way to trade the news flow this week, as exemplified in the $300 billion-plus foreign-exchange option market. 

There has been a “decent concoction of option requests without a conspicuous theme,” says Mukund Daga, head of foreign-exchange options for Asia at Barclays Bank Plc in Singapore. “We’ve seen new directional trades being put as well as unwinds of existing trades.”

The uncertainty over direction comes less than 24 hours after there was a “definite pickup” in hedge fund demand for option trades looking for the greenback to weaken versus both the yen and Swiss franc, according to Sagar Sambrani, a senior foreign-exchange options trader at Nomura in London. 

Worries around DeepSeek have spurred risk-off sentiment. Investor Marc Andreessen has compared the success of the low-cost AI product to the 1957 gamechanger when the Soviet Union launched a satellite into space.

Upcoming policy decisions from the Federal Reserve and European Central Bank are compounding jitters, while the upcoming Lunar New Year is also reducing liquidity. That will leave currencies even more susceptible to being whiplashed in either direction on headline news.

There’s “very, very little activity we are seeing here today,” said Alvin Tan, strategist at RBC Capital Markets in Singapore. “Market activity is thinning.”

The dollar rose as much as 0.5% in Asia on Tuesday, after President Donald Trump and his Treasury Secretary Scott Bessent stoked concern that a brief respite from tariff talk was well and truly over.

“Most of the flows that we are seeing at the moment are leveraged names looking to own short-dated options,” says Nathan Swami, Singapore-based head of FX trading for Asia Pacific at Citi. “This is not a directional flow per se, just a reflection of nervousness around headline risks going into the long Lunar New Year weekend.”

Nick Twidale is among those watching foreign-exchange trades slow by the hour as jitters around US tariffs and artificial-intelligence companies spread across markets. Volumes have fallen by around a third, according to the 26-year currency trading veteran at AT Global Markets.

“Many are too afraid to trade right now,” he said.

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