Asset managers’ bets on the dollar are at an all-time high

Asset managers increased bearish dollar wagers to an all-time high amid speculation that slowing US inflation may speed the end of the Federal Reserve's 16-month policy tightening cycle. According to statistics from the Commodity Futures Trading Commission and aggregated by Bloomberg, institutional investors, including pension funds, insurers, and mutual funds, boosted their net short position on …

Asset managers increased bearish dollar wagers to an all-time high amid speculation that slowing US inflation may speed the end of the Federal Reserve’s 16-month policy tightening cycle.

 

According to statistics from the Commodity Futures Trading Commission and aggregated by Bloomberg, institutional investors, including pension funds, insurers, and mutual funds, boosted their net short position on the dollar by 18% to 568,721 contracts in the week ending July 18.

 

On July 12, the Bloomberg Dollar Spot Index fell the most in six months after US government data indicated that inflation slowed more than economists predicted in June. The Fed will boost its key rate by 25 basis points this week, but it may begin reducing rates early next year, according to overnight-indexed swaps.

 

“We have been gaining this confidence that inflation will come down quite significantly over the coming quarters in the US,” Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank Ltd., said on Bloomberg Television. “That, in and of itself, will encourage the market to believe that the Fed is not only done, but that it is contemplating rate cuts toward the end of the year, which will be a significant downturn for the US dollar.”

 

According to Bloomberg statistics, asset managers increased dollar net shorts against the euro and pound the highest of the eight currencies. Simultaneously, they reduced yen shorts by the highest since March 2020.

 

The market is bracing for a slew of significant central bank policy announcements this week, including those from the Fed on Wednesday, the European Central Bank on Thursday, and the Bank of Japan on Friday.



Key notes:

  • Institutional investors have increased their net short position on the US dollar by 18% to a record high, indicating bearish bets on the currency.

  • The Bloomberg Dollar Spot Index experienced its largest decline in six months after US government data revealed a slower-than-expected inflation rate in June.

  • Market confidence in decreasing inflation in the US is leading investors to believe that the Federal Reserve will not only halt its policy tightening but also consider rate cuts by the end of the year, which would negatively impact the value of the US dollar.

 

Risk disclaimer:

 

Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.