US Dollar Optimism Surges Among Market Participants


In the most recent week, hedge funds cut their net short position in dollars by roughly $5 billion, as shown by data from the US futures markets. This marks the most significant shift towards a more positive position of the dollar since May of the previous year.

Based on the information from the Commodity Futures Trading Commission, the value of funds’ short dollar position against G10 currencies, the Mexican peso and Brazilian real, went down from $7.17 billion one week prior to $2.25 billion for the week ended September 12th.

Out of the past seven weeks, six have witnessed speculators adopting a more optimistic stance on the dollar, or rather becoming less bearish, as they are now on the cusp of switching to open net long positions for the first time since November.

The recent upswing in the dollar has been propelled by strong US economic data, rising bond yields, and expectations regarding interest rates, both nominal ones and in terms of major currencies. Moreover, this shift has occurred rather swiftly.

The euro has undergone the most dramatic shift during the past week. The funds’ net long positions decreased by 23,151 contracts to 113,080 contracts last week, the greatest weekly decrease since June of last year, and the lowest level since November.

Last week’s rate hike by the ECB might prompt additional reductions in positions by speculators who are still betting on the euro's appreciation amounting to $15 billion.

That said, ECB hawks have emphasized that the absence of a rate hike does not imply an imminent rate cut, and funds may be beginning to experience fatigue, given that they have reduced their long euro positions in 14 out of the last 17 weeks.

The euro has sustained a nine-week consecutive decline against the dollar, marking its most substantial downturn since its introduction in 1999.

On the other hand, the dollar index, which measures the dollar's strength or weakness against a basket of other major currencies, has risen over the previous nine weeks in a row, its greatest performance since 2014.

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