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Investing.com – Hedge funds are preparing to exit their bets on a bullish US dollar, on the prospect of ending a bullish cycle, which will provide massive support for gold and other assets that benefit from declines.
An index measuring long dollar positions against (sell) eight other currencies open with debt-financed funds fell by more than four-fifths as of June 27 from the previous week, according to data from the Commodity Futures Trading Commission compiled by Bloomberg. It fell to 5,196 contracts, the lowest since March 7.
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A bet on the decline of the dollar
The global reserve currency has been on a downtrend since it peaked in September, and the Bloomberg Spot Dollar Index has fallen in four out of six months this year.
Federal Reserve Chairman Jerome Powell said on June 22 that the US may need one or two more rate hikes this year. But declining greenback bets suggest hedge funds are looking beyond this and instead focusing on an eventual start to rate cuts that could start as early as the first quarter of next year, according to the overnight swaps index.
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In addition, peers such as the European Central Bank may need to raise interest rates to contain high inflation, which could make the dollar relatively less attractive.
“There is a belief that the Fed can’t raise rates much more, especially when you compare that with Europe, and that is reflected in the amount of long bets on the dollar,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.
He added, “Although the markets acknowledge that the Fed may raise interest rates a bit more, the belief that the dollar has peaked is very widespread, and hedge funds are betting on further decline in the US dollar from now on.”
Dollar forecast
Bank of America (NYSE:) economists expected that the US dollar is likely to witness a moderate decline at the end of next year, despite some growing expectations about the contribution of technological developments to production growth in the United States; However, the US Bank analysts do not think that the potential productive strength will reflect positively on the dollar’s movements.
Accordingly, the United States is expected to witness weak economic growth in the medium term, so the US dollar may decline clearly during the same period.
2023-07-04 09:30:00
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