US Dollar Shorts Become Favourite Trade As Fed Seen Slowing Hikes
Investors are selling the dollar in droves as bets mount that the Federal Reserve will slow the pace of its interest-rate hikes.
(Bloomberg) -- Investors are selling the dollar in droves as bets mount that the Federal Reserve will slow the pace of its interest-rate hikes.
The Bloomberg Dollar Spot Index fell to the lowest in almost nine months on Monday as easing US inflation expectations prompted funds to ditch the ultimate haven asset. Every major currency in the world rallied against the greenback, with the Australian dollar and the yuan advancing to key levels.
“Just two weeks into the year, and it feels like the big ‘buy dollar’ trade of 2022 is turning into the hottest macro short now,” said Patrick Bennett, strategist at Canadian Imperial Bank of Commerce in Hong Kong. In addition to the Fed, “we are also being driven by a reversal in China with Zero Covid scrapped well ahead of when it was expected.”
The dollar’s fortunes have suffered a dramatic U-turn in recent months as funds from JPMorgan Asset Management to Goldman Sachs Group Inc. predict the Fed will soon rein in the pace of its tightening. Traders are now expecting the Fed fund rate to peak at 4.94% from more than 5% earlier this month.
The Bloomberg Dollar Spot Index dropped as much as 0.4% to reach the lowest since April 2022 on Monday.
The greenback’s decline comes as data from the Commodity Futures Trading Commission show leveraged funds have cut yen shorts to the lowest level since February 2021. They also trimmed bearish bets on the Aussie while switching to net longs on the New Zealand dollar.
The resumption of economic activity in China is bolstering demand for risk-sensitive currencies, with the Australian dollar rising above 70 U.S. cents for the first time since August on Monday. Indonesia’s rupiah climbed more than 1%, the South Korean won advanced 0.8% and the offshore yuan rose to the strongest since July.
“The dollar is under pressure as the market becomes more confident a Fed pause is coming,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. The rise of the yuan is “just as important” for commodity-linked currencies like the Australian dollar as risk sentiment improves, he said.
--With assistance from .
(Adds CFTC positioning data in sixth paragraph)
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