(Bloomberg) -- A brief period of bullishness on the Taiwan dollar looks to be over, according to a closely-watched measure in the options market.

Gauges of demand for bullish call options over bearish puts on the US dollar versus its Taiwanese equivalent have returned to neutral territory, having mostly been below zero for the past four months. That suggests traders have dialed back their positive bets on the Asian currency as they come to terms with the greenback’s resilience.

Mounting evidence of a robust US economy has led some traders to push back the expected timing of the Federal Reserve’s rate cut, bolstering dollar bets. The latest evidence came from strong manufacturing data, which further tipped the scales in favor of the US currency.  

“Relentless dollar strength, fueled by ISM manufacturing data, hawkish Fed rhetoric and ongoing yuan and yen softness may continue to weigh on the Taiwan dollar in the interim,” said Christopher Wong, a foreign-exchange strategist at Oversea-Chinese Banking Corp. Policymakers may step in to smooth excessive volatility but are unlikely to reverse the trend, he added. 

The so-called risk reversals dipped below zero late last year as the Fed’s dovish pivot aided risk sentiment. An artificial intelligence-driven rally in the domestic stock market and clarity following the island’s presidential election in January further supported the outlook for the local currency. 

Weakness in the yuan and the yen — currencies from Asia’s two-biggest economies — is also denting sentiment over Asian peers in general. The greenback has bucked bearish expectations that prevailed just months ago and is extending a nascent rebound.

The Taiwan dollar, which remains sensitive to yield differentials with the US and equity flows, may stay on the weak side for the next few months until the Fed cuts rates and semiconductor-related exports improve, according to Barclays Plc. It fell to 32.092 per US dollar on Tuesday, a four-month low.  

“We see upside risks now as the pair is rising above 32,” Lemon Zhang, a foreign-exchange strategist at Barclays, said of the US-Taiwan dollar cross. “US-Taiwan rate differentials still look vast, even after initial cuts from the Fed.”

--With assistance from Chien-Hua Wan.

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