Forex
Column-Long dollar bets explode, as funds join the dots: McGeever
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By Jamie McGeever
ORLANDO, Florida (Reuters) – Looked at through a currency market lens, the verdict from hedge funds on the recent wave of major central bank policy meetings could not be clearer – don’t bet against the mighty dollar.
The latest Commodity Futures Trading Commission data show that speculators are going ‘all in’ on a stronger dollar, particularly against G10 currencies, and especially the Japanese yen and Swiss franc.
Figures for the week through March 26 show that speculative CFTC accounts increased their net long dollar position against a range of G10 and emerging currencies to $13.5 billion, the highest since September 2022.
The net long position against G10 currencies was even higher at $17.64 billion, a level not seen since July 2022. In both cases, most of the surge has come in the last few weeks during which time the Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank all held policy meetings.
From a relative rates perspective, the dollar has emerged the victor. Fed policymakers lifted the median ‘dot plot’ and long-run neutral rate projections, the BOJ’s historic rate hike was deemed to be ‘dovish’, the ECB could ease policy before the Fed, and the SNB was the first major central bank to cut rates.
Even those who are more gloomy on the dollar’s longer-term prospects recognize its relative attraction in the short term.
“The bar remains high … to boost the dollar substantially, but signs of continued economic resilience in the US could still keep the greenback on the front foot in the short term,” Capital Economics senior economist Jonathan Peterson wrote last week.
YEN, SWISSIE CARRY THAT WEIGHT
Speculators appear to agree.
In the week through March 26 they increased their net short yen position to 129,106 contracts, CFTC data show. That’s close to the 132,000 contracts net short in February which was funds’ biggest bet against the yen in over six years.
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.
Funds have increased their net short yen position in nine of the last 11 weeks, the two outliers being in the run up to the BOJ’s historic rate hike in March.
CFTC funds’ short yen position is now worth $10.65 billion and the renewed bearishness is probably one of the reasons the Japanese currency last week hit a 34-year low against the dollar.
CFTC data also show hedge funds grew their net short Swiss franc position in the latest week to the largest in almost five years. It now stands at 22,627 contracts, a bet worth more than $3 billion – both are the highest since June 2019.
Funds also continued to reduce their net long euro position which now stands at 31,194 contracts, a $4.2 billion bet on the euro appreciating. Both are the smallest since September 2022.
(The opinions expressed here are those of the author, a columnist for Reuters.)
(By Jamie McGeever; Editing by Chizu Nomiyama)
Forex
Major Russian lenders say yuan coffers empty, urge central bank action
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By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
Forex
Bank of America sees more downside for the dollar
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Investing,com – The US dollar has stabilized after a sharp fall in August, but Bank of America Securities sees more troubles ahead for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.077, having largely held its course over the last week.
That said, the US currency is still down 1.6% over the month.
The dollar’s selloff last month stood out in a historical context, according to analysts at Bank of America Securities, in a note dated Sept. 5.
The greenback has since stabilized, however, despite the outsized weakness, the US bank still sees three reasons to stay bearish on the Dollar Index (DXY).
Following similar episodes of bearish DXY breakouts, the index has tended to continue its downtrend, the bank said.
In the last 3 analogs, DXY index fell on average for another 4% before reaching a bottom. Extending this analysis to bilateral USD/G10 pairs suggests a continuation of the USD downtrend is more likely vs EUR, GBP, and AUD than SEK, NOK, and CHF in G10.
While the DXY made a new year-to-date low in August, broad nominal and real USD trade-weighted indices have stayed at Q4 2022 levels and would suggest the USD remains overvalued.
The USD selloff in 2024 has been concentrated in and other European currencies, leading to DXY divergence from other USD indices.
The bank also noted US 10y Treasury yield’s tendency to fall after the first Federal Reserve cut, while global financial conditions are set to loosen further.
“USD may see more weakness as other central banks, particularly the ones that cut policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside of the US,” BoA added.
Forex
Dollar’s demise appears overstated – JPMorgan
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Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
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