King dollar: Hedge funds sharpen bet on rising greenback
Net long position among leveraged funds hits highest level since 2015
Hedge funds have boosted their bullish bets on the buck to the highest level since late 2015, according to newly released data that highlight the upbeat sentiment of investors towards the US dollar.
Net long positions among leveraged funds rose $1.8bn to $30.8bn in the week to August 14, according to a BMO Capital Markets analysis of data from the US Commodity Futures Trading Commission.
The rise left the net long position at the highest level since December 2015, narrowly surpassing the January 2017 peak of $30bn, according to Stephen Gallo, a BMO currencies strategist. Leveraged funds have taken a net long position on the dollar against several major developed market peers, including the euro, UK pound and the Japanese yen, the data show.
The CFTC data track activity in the futures market, which is a small sliver of the $5tn a day foreign exchange market but still provides an important proxy of investor sentiment.
Investors have become increasingly upbeat on the US dollar this year given rapid American economic growth and expectations that the Federal Reserve will continue tightening monetary policy. Typically higher US bond yields compared to partners provides a boon to the dollar.
On the other side of the equation, many of America’s major trading partners, in particular those in Europe, have experienced slower growth this year.
The divergence is underscored by the $46bn swing over the past five months in the net long position of leveraged funds.
“The 6 per cent dollar rally during that period is a surprisingly small move given the monumental size of the positioning flip,” said Mr Gallo.
Still, Derek Halpenny, European head of markets research at MUFG, notes: “On the two previous occasions positioning has reached these levels, the market has failed to sustain these long dollar positions for very long and were followed by a period of sharp liquidation.”
Minutes from the Fed’s August meeting and the start of the central bank’s annual conference in Jackson Hole, Wyoming, will be “in focus” this week, said Mr Halpenny. He said that a speech on Friday by Fed chief Jay Powell “could well be a catalyst for a sharp reversal the other way as long dollar positions are pared.”