Hedge Funds Continue to Favor the Mighty Dollar
Speculators Go All-In
The Currency Market Perspective
As seen through the eyes of the currency market, hedge funds are standing firm on their belief in the strength of the dollar following recent major central bank policy meetings. The latest data from the Commodity Futures Trading Commission reveals that speculators are heavily backing a stronger dollar, particularly against G10 currencies, with a focus on the Japanese yen and Swiss franc.
Surging Dollar Positions
Impressive Numbers
The figures for the week ending March 26 show a significant increase in speculative CFTC accounts’ net long dollar position against both G10 and emerging currencies, reaching a total of $13.5 billion. This marks the highest level since September 2022. The net long position against G10 currencies is even more substantial at $17.64 billion, a level not seen since July 2022, with a majority of the surge observed in recent weeks during pivotal policy meetings held by the Federal Reserve, European Central Bank, Bank of Japan, and Swiss National Bank.
The Dollar Emerges Victorious
Relative Rate Superiority
The dollar has emerged as the frontrunner from a relative rates perspective. Factors such as the Federal Reserve’s upward adjustment of median ‘dot plot’ and long-run neutral rate projections, the perceived ‘dovishness’ of the Bank of Japan’s rate hike, speculation around the ECB potentially easing policy before the Fed, and the Swiss National Bank’s rate cut have all played in favor of the mighty dollar.
Short-Term Dollar Dominance
Recognizing Potential
Even those with reservations about the dollar’s long-term outlook acknowledge its current appeal. Capital Economics’ senior economist Jonathan Peterson highlighted last week that while significant hurdles remain for a substantial dollar boost, signs of ongoing economic strength in the US could keep the greenback in a positive position in the short term.
Yen and Swiss Franc Under Pressure
Speculators’ Sentiment
Speculators are aligning with this sentiment, evident in their increased net short yen positions and growing bets against the Swiss franc. This bearish stance on the yen has been consistent, with funds enhancing their net short positions to significant levels. This shift has notably contributed to the yen hitting a 34-year low against the dollar recently. Similarly, hedge funds are increasingly betting against the Swiss franc, setting up the largest net short position in almost five years, reflecting a bet worth more than $3 billion.
Adjustments in Euro Positions
Shifting Landscape
Furthermore, there has been a reduction in net long euro positions, signaling a bet on the euro’s potential appreciation. These adjustments in euro positions are the smallest since September 2022, reflecting a nuanced market sentiment towards the European currency.
Remember, the views expressed are solely those of the author and do not reflect the opinions of Reuters.
© Jamie McGeever; Editing by Chizu Nomiyama
