Options traders are unwinding bullish positions on the Chinese yuan following the Federal Reserve's hawkish pivot in June. The trade, which ranked among the year's most crowded, is reversing as market sentiment shifts toward the dollar after the Fed's policy decision on June 17.

Trading data from the Depository Trust & Clearing Corp shows that $100 million-plus dollar-yuan call options—contracts that profit when the dollar strengthens—have seen higher volume than put options over the past two weeks. This represents a significant change in positioning among major currency market participants.

The shift comes as investors reassess the trajectory of US interest rates and their impact on emerging market currencies. With the Fed signaling a more aggressive stance on inflation, the carry trade dynamics that previously supported the yuan are coming under pressure.

This unwind suggests that hedge funds and institutional investors who had piled into yuan appreciation trades are now closing positions, potentially removing a buffer that supported the currency against further dollar strength.