Hedge funds have changed their views on the dollar, betting that the greatest days of the US currency may be behind it. | Paragon Alpha

Hedge funds have changed their views on the dollar, betting that the greatest days of the US currency may be behind it.

By Matea Gucec

Data from the Commodity Futures Trading Commission show that leveraged investors made their first bearish move since last August last week, switching to a net short position on the dollar against a basket of eight important rivals. Due to a hawkish Federal Reserve and worries about slowing global growth, hedge funds have been some of the greatest supporters of the dollar this year.

As evidence mounts that the aggressive Fed interest rate hikes may finally be slowing the fastest US inflation in four decades, sentiment may be changing. The Bloomberg Dollar Spot Index surged more than 14% the year before, but it has since dropped more than 3% from its all-time high in July.

According to Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore, funds do appear to be signaling that the peak in the strength of the dollar has passed. They can wager that the Fed would rapidly reach its peak in the tightening cycle and possibly start lowering rates in 2019.

According to CFTC data, hedge funds increased their bullish bets on the pound over the same week to the biggest level since March 2020. Additionally, they reduced their bearish bets on the yen, euro, and Australian dollar, and they slashed their net-short bets on the Canadian currency to their lowest level since mid-June.

However, other analysts argue that it is still too soon to declare the dollar worthless.

According to Westpac Banking Corp., the US dollar may not reach its peak until later this year, when the market receives proof that the Fed's tightening cycle has indeed reached its peak.

Imre Speizer, a strategist, said "I'm not yet certain the USD top is in." "It's probably a fourth-quarter tale more than anything,"


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