Following the Federal Reserve’s unexpected announcement signaling the conclusion of its monetary tightening campaign, there has been a surge in popularity for betting against the US dollar. Non-commercial traders, comprising hedge funds, asset managers, and speculative market participants, significantly increased their bearish positions on the greenback in the week ending Tuesday, according to CFTC data compiled by Bloomberg. The number of contracts anticipating a decline in the US currency surpassed 39,000, representing an increase of more than 10,000 compared to the week before the Fed’s meeting.
Despite the heightened bearish sentiment leading to a notable decline in the dollar’s value, the dollar amount associated with these contracts has slightly decreased to $5.5 billion, marginally lower than the previous week. The dollar’s slump has persisted, with the Bloomberg Dollar Spot Index reaching its lowest level since July, recording a year-to-date decline of over 2%, on course for its worst annual performance since 2020.
The article notes that the dollar extended its decline after the Federal Reserve’s favored gauge of underlying inflation indicated subdued price gains, reinforcing the central bank’s inclination toward interest-rate cuts in the coming year. The Swiss franc strengthened to its highest level against the US dollar since 2015, while the euro and Norwegian krone reached their peak levels since August. Furthermore, the demand for options favoring a stronger dollar has dropped to the lowest since June, as indicated by an index of one-year risk reversals, suggesting anticipation of further weakness in the dollar in the coming year.
Position Adjustments by Leveraged Funds:
- Reduced net short positions on JPY by 3,563 contracts to 62,251.
- Increased net short positions on EUR by 15,736 contracts to 25,828.
- Raised net long positions on GBP by 15,854 contracts to 29,949.
- Switched AUD positions to net long by 2,365 from net short 1,626.
- Switched NZD positions to net long by 2,461 from net short 7,300.
- Raised net short positions on CAD by 14,264 contracts to 51,971.
- Switched CHF positions to net long 33 from net short 3,244.
- Raised net long positions on MXN by 1,775 contracts to 25,352.
Net Position Changes by Asset Managers:
- Switched JPY positions to net long by 13,704 from net short 3,071.
- Decreased net long positions on EUR by 1,454 contracts to 379,612.
- Raised net short positions on GBP by 9,499 contracts to 42,979.
- Cut net short positions on AUD by 9,122 contracts to 64,891.
- Trimmed net short positions on NZD by 2,723 contracts to 9,356.
- Lowered net short positions on CAD by 21,885 contracts to 27,295.
- Reduced net short positions on CHF by 3,571 contracts to 3,686.
- Increased net long positions on MXN by 5,422 contracts to 139,357.
