ORLANDO, Florida, June 9 (Reuters) – Hedge funds and
speculators continue to temper their optimism on the U.S.
dollar, and are now holding the smallest net long position in
the currency since March.
The question now is whether the decks have been cleared
enough to begin rebuilding these bullish bets, or whether the
U.S. economic outlook and the monetary policy path overseas will
encourage funds to scale them back even further.
Friday’s U.S. employment report, and subsequent spike in
bond yields and paring back of Fed rate cut expectations,
suggest the dollar selloff is running out of steam. Hawkish
signals from the Fed’s revised economic projections and Jerome
Powell on Wednesday would likely cement that view.
“The power of the U.S. jobs data … reinforces the risk of
the Fed remaining on the sidelines for longer,” MUFG analysts
wrote on Friday.
However, growth concerns refuse to dissipate and before
Friday’s rebound, Treasury yields and the dollar were at
two-month lows.
In addition, the Bank of Japan is tightening policy and the
European Central Bank doesn’t seem keen on embarking on a
full-scale easing cycle. The dollar’s relative appeal may not
improve all that much
The latest Commodity Futures Trading Commission data show
that speculators cut their net long dollar position against a
basket of G10 and emerging market currencies to just under $11
billion in the week ending June 4 from $15.3 billion the week
before.
That is around a third of the $32.6 billion wager on a
stronger dollar from only six weeks ago. That was a five-year
high too.
The value of funds’ long dollar position against G10
currencies fell to $14 billion from $18.2 billion the prior
week. That’s also significantly down from a five-year high of
$36.3 billion in late April.
A long position is essentially a bet that an asset will rise
in value, and a short position is a wager its price will fall.
Recent dollar-selling has been particularly steady against
the two major European currencies. The latest CFTC data show
funds now hold their biggest net long euro position in three
months and largest net long sterling position in two months.
The Japanese yen and Canadian dollar are the two currencies
against which funds are holding historically large long U.S.
dollar positions. They went in opposing directions last week.
Funds cut their net short yen position by 15% to $10.66
billion from $12.4 billion the week before. Two bouts of direct
yen-buying intervention from Tokyo and the BOJ’s policy
‘normalization’ have prompted funds to reduce their net short
yen position by more than a quarter from April’s 17-year high.
It’s a different story with the ‘loonie’. Funds increased
their net short position in the week through June 4 to 91,639
contracts, a position now worth $6.7 billion. By both measures,
that is the biggest bet against the currency in seven years.
(The opinions expressed here are those of the author, a
columnist for Reuters)
(By Jamie McGeever; Editing by Christopher Cushing)
