© 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.)
Yen weakens as Bank of Japan keeps interest rates negative, dollar strengthens
The Japanese yen fell sharply on Friday after the Bank of Japan (BOJ) decided to keep interest rates in negative territory at -0.1 percent. This decision came just days after the Federal Reserve signaled that U.S. borrowing costs would remain high, exerting pressure on the Japanese currency and raising the possibility of government intervention. The yen dropped to as low as 148.42 against the dollar, nearing the 150 mark, a level at which analysts have suggested government intervention to support the currency could be likely.
BOJ Governor Kazuo Ueda stated at a press conference that the central bank has yet to foresee inflation stably and sustainably achieving their price target. As such, they will continue to maintain an ultra-loose monetary policy until they are confident inflation will remain at their 2 percent target. However, Ueda also noted that policy shifts could occur if they foresee the achievement of their target.
Speculation regarding potential Tokyo intervention to support the yen has been growing. Japan’s Finance Minister Shunichi Suzuki warned against a yen sell-off that could harm the trade-reliant economy and did not rule out any options for intervention on Friday. Alvin Tan, head of Asia FX strategy at RBC Capital Markets, suggested that we are moving towards intervention levels due to increasingly explicit verbal intervention warnings from the Ministry of Finance.
Meanwhile, in the United States, the was on track for its 10th consecutive weekly increase following the Fed’s decision and weakening economic data from France that led to a drop in the euro. The dollar index rose 0.16 percent to 105.55 on Friday and was set for a weekly increase of around 0.2 percent.
The Federal Reserve maintained interest rates at 5.25 percent to 5.5 percent on Wednesday and emphasized that it would hold them at this level as long as necessary to push inflation back to 2 percent. This stance has pushed yields on 10-year U.S. Treasuries to their highest level since 2007 at over 4.47 percent, making dollar-denominated U.S. bonds more attractive and bolstering the greenback.
Ray Sharma-Ong, investment director of multi-asset solutions at abrdn, stated that the U.S. dollar will perform well due to the Fed’s hawkish stance, the reduction in the expected number of rate cuts in 2024, resilient U.S. growth, and expectations of slower growth in the euro area relative to the U.S.
In other currency news, the sterling slipped to a roughly six-month low of $1.22305 on Thursday when the Bank of England halted its long run of interest rate increases after Britain’s fast pace of price growth unexpectedly slowed. The Australian dollar saw an increase of 0.25 percent at $0.6433 on Friday.
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Asia FX muted, yen drops after BOJ keeps dovish course
Investing.com– Most Asian currencies moved little on Friday as markets continued to fret over higher U.S. interest rates, while the yen came close to 10-month lows after the Bank of Japan maintained its ultra-dovish policy.
The dollar remained relatively well-bid in Asian trade, recovering a measure of overnight losses. The and rose about 0.1% each, and remained within sight of a six-month high hit earlier this week.
Yen weakens as BOJ reiterates dovish stance
The fell 0.4% to 148.16 against the dollar, and was trading just shy of its weakest levels since November 2022.
The Bank of Japan maintained , and said it will and yield curve control policies to foster economic growth.
The bank cited increased uncertainty over the Japanese economy, especially due to weakness in its biggest trading partners, as the main reason for maintaining its stimulative policies. The BOJ also said it will continue to target more wage growth and aim to help inflation reach its 2% annual target.
The decision came just a few hours after data showed Japanese grew slightly more than expected in August. A core reading, which excludes fresh food and fuel prices, remained pinned at an over 40-year high.
The BOJ statement disappointed some investors hoping for more cues on a potential pivot away from negative rates, given that Governor Kazuo Ueda had recently said that the bank had enough data to consider such a move.
Focus is now on an address from Ueda at 3:30 PM JST (02:30 ET) for any more cues on a pivot.
Broader Asia FX muted as Fed fears persist
Most other Asian currencies crept higher on Friday, but were still nursing steep losses for the week after the Federal Reserve warned that .
The and the had also offered similar warnings.
rose 0.1% amid continued focus on stimulus measures in the country, while the added 0.1% as preliminary business activity data for September showed some resilience.
The rose 0.3% after being included in JPMorgan’s emerging market bond index, which is expected to attract more foreign inflows to the country. But sentiment towards India remained skittish amid a growing diplomatic row with Canada, after Prime Minister Justin Trudeau accused India of killing a Sikh secessionist leader on Canadian soil.
added 0.4%, while the and moved little after their central banks held interest rates as expected.
Still, the outlook for most Asian currencies remained bleak in the face of . The Fed flagged one more potential rate hike this year, and flagged fewer than expected rate cuts in 2024.
Dollar eases after Fed-spurred rise; yen stronger ahead of BOJ
© Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The U.S. dollar eased against a basket of currencies on Thursday, but remained near a six-month high, a day after the Federal Reserve signaled U.S. monetary policy will remain restrictive for longer.
The Japanese yen strengthened against the greenback before Friday’s Bank of Japan policy announcement, while the pound and the Swiss franc slipped after the British and Swiss central banks kept rates unchanged.
The Fed held interest rates steady at the 5.25%-5.50% range, in line with market expectations on Wednesday, but it signaled that its officials increasingly believe hawkish policy can succeed in lowering inflation without wrecking the economy or leading to large job losses.
Along with another possible rate hike this year, the Fed’s updated projections show significantly tighter rates through 2024 than previously expected.
“Dollar bulls absolutely got what they wanted yesterday,” Helen Given, an FX trader at Monex USA.
“Though Powell didn’t go as far as to say he expects a soft landing, it’s pretty clear between the dot plot and the Fed’s updated growth forecasts the central bank has convinced markets that is where the U.S. economy may be headed,” Given said.
“Of course, this contrasts fairly directly with guidance from the ECB and BoE, facing much more dire economic situations,” she said.
The , which measures the currency against a basket of rivals, was 0.10% lower at 105.33, after rising as high as 105.74, its strongest since March.
The yen was up 0.58% at 147.46 per dollar. With the yen still near a 10-month low against the greenback attention remains fixed on the possibility of the Japanese government intervening in foreign exchange markets to prop up the currency.
Japan will not rule out any options in addressing excess volatility in currency markets, the government’s top spokesperson said on Thursday, issuing a fresh warning against the yen’s decline towards the psychologically important 150-mark per dollar.
“Traders are repositioning before both the meeting tomorrow and CPI releases,” Monex’s Given said.
The BOJ will end its negative interest rate policy next year, the majority of economists said in a Reuters poll, as the market has begun to envisage the demise of its ultra-easy monetary settings.
“While we are unlikely to get a rate hike tonight we may just hear some comments that imply one is to come,” Brad Bechtel, global head of FX at Jefferies, said in a note.
The pound fell to its lowest since March after the Bank of England held interest rates steady on Thursday, following a cooler-than-expected inflation report the previous day.
Thursday marked the first time since December 2021 that the BoE did not raise rates at its monetary policy meeting, a halt to a run of 14 consecutive rate hikes.
The pound was 0.41% lower at $1.22935.
Earlier, the Swiss franc dropped after the Swiss National Bank unexpectedly held rates steady, marking the first time the central bank has not hiked since March 2022, although it kept options open for further rate rises.
Meanwhile, Sweden’s Riksbank and Norway’s central bank both raised rates by 25 basis points, in line with expectations.
The euro was up 0.18% against the Swedish crown and about flat against the Norwegian crown following the respective decisions.
In cryptocurrencies, bitcoin was down about 2.0% on the day at $26,593.
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