© Reuters. FILE PHOTO: One hundred US dollar banknotes are seen in this illustration taken in Seoul on February 7, 2011. REUTERS/Lee Jae-won // FILE PHOTO
Written by Jimmy MacGyver
ORLANDO, Fla. (Reuters) – Hedge funds have increased their bets bearish on the dollar by more than $7 billion in a week, and are now in their biggest net dollar position in more than two years.
The move was largely due to shifts in net holdings of the euro and yen, and it comes ahead of monetary policy decisions from the Federal Reserve, European Central Bank and Bank of Japan.
Speculators’ long sterling position is now the largest on record, although decent GBP selling interest means the overall net long position remains at a 16-year high, not an all-time high.
Commodity Futures Trading Commission data for the week ended July 18 shows that speculators increased their net dollar short positions against a group of G10 and emerging currencies to $20.6 billion from $13.17 billion in the previous week.
It’s the biggest bet on the dollar’s decline since March 2021, and it marks the 37th consecutive week that funds have been short.
The $7.4 billion downward shift in total dollar funds position was the largest since March 2020, accounted for mostly by $5.8 billion and $2.3 billion in euro and yen positions, respectively.
Being “short” an asset is essentially a bet that it will decrease in value, while being “long” is an actual bet that it will appreciate. Investors often use futures contracts to hedge positions, but CFTC data is often a very good guide to hedge funds’ view on a particular asset.
The dollar value of a short money position is significant, but not extreme. It was much larger for extended periods around 2006-2008, 2010-2011 and 2020-2021, and it’s still half of the record bets in 2011 over $40 billion.
But the net long position of the EUR is near record highs, perhaps not a complete surprise given that last week the trade-weighted EUR reached its strongest level on record.
The funds increased their net long position by around 40,000 contracts to just under 180,000 contracts, close to an all-time high of over 200,000 contracts in August 2020.
This is a $25 billion bet on the rise of the euro.
It’s a different story with the yen, as it’s still very short money, but they upped that bet significantly in the week to July 18th. Earlier this month, their net short positions were the largest in five and a half years.
We’ll only get the full picture of the central bank’s pre-G3 situation for CFTC funds with data for the week ending July 25th, which will be released after policy decisions.
However, the latest snapshot of the week ending July 18 suggests that speculators may be taking a stance for the Fed that is more dovish for the ECB, and trimming a large and profitable short position in the yen.
(Writing by Jimmy MacGyver; Editing by Shri Navaratnam)