Forex
Funds on verge of long dollar flip: McGeever
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![Funds on verge of long dollar flip: McGeever](https://i-invdn-com.investing.com/trkd-images/LYNXMPEJ8H01I_L.jpg)
© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
By Jamie McGeever
ORLANDO, Florida (Reuters) -Hedge funds cut their net short dollar position by nearly $5 billion last week, according to the latest U.S. futures markets data, the biggest swing towards a more bullish dollar stance since May last year.
The move away from a bearish dollar position and the dollar’s rally over the last couple of months, however, have been so steady that a period of consolidation or profit-taking reversal must surely be looming.
Commodity Futures Trading Commission figures show that the value of funds’ short dollar position against G10 currencies plus the Mexican peso and Brazilian real fell to $2.25 billion in the week to September 12 from $7.17 billion the week before.
It was sixth week out seven that speculators have turned more bullish on the dollar – or less bearish, if you prefer – and they are now on the verge of flipping to an outright net long position for the first time since November.
The dollar-positive shift, in light of resilient U.S. economic data, bond yields and rate expectations – nominally and relative to major peers – has been pretty rapid.
Less than two months ago, funds’ were net short of dollars to the tune of $21.3 billion, the biggest bet against the greenback since June 2021.
Speculators’ net short dollar position against just the G10 currencies, which was worth $18 billion as recently as July, has now completely evaporated.
A short position is essentially a wager an asset’s price will fall, and a long position is a bet it will rise. Hedge funds often take directional bets on currencies, hoping to get on the right side of long-term trends.
This is broadly reflected in CFTC positioning cycles.
The biggest move in the latest week was in the euro. Funds cut their net long holdings by 23,151 contracts to 113,080 contracts, the smallest net long since November and the biggest week-on-week reduction since June last year.
The European Central Bank’s ‘dovish hike’ last week could encourage further long liquidation from the speculative community, whose position is still effectively a $15 billion bet that the euro will rise.
But ECB hawks are banging the drum that no more rate hikes does not mean rates will be cut any time soon, and again, fatigue may set in – funds have cut their net long euro position 14 weeks out of the last 17.
The euro has now weakened against the dollar for nine weeks straight, its worst weekly run since the currency was launched in 1999.
The flip side is the , a measure of the dollar’s value against a basket of major currencies, is up nine weeks in a row, its best run since 2014.
The latest CFTC data showed that funds are still holding a large net short yen position worth $8.4 billion, a position that hasn’t changed much over the last few weeks.
The Bank of Japan and U.S. Federal Reserve policy meetings this week, however, could give the yen and dollar clearer direction into year end.
(The opinions expressed here are those of the author, a columnist for Reuters.)
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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