US dollar: short positions at over a year high

US dollar: short positions at over a year high

The US dollar gained a few positions earlier this week, with the Dollar Index rising 0.55% to 107.40 and EUR/USD falling 0.57% to 1.0265. Right now, investors are worried about the Covid-19 cases in China and above all due to the fact that some Chinese cities, which had relaxed the restrictive measures on the epidemic, have started to close again.

However, this could be one of the greenback’s last tailspins as a safe-haven asset, as traders are significantly increasing their short positions on the currency. According to data released by the Commodity Futures Trading Commission, in the last week short positions on the dollar against eight currencies reached 321,758 contracts, the highest value since July 2021. While hedge funds sold the US currency for the fifth consecutive week.

All of this suggests that the dollar peak has come to an end or at least that the extraordinary strength of the greenback that marked the whole of 2021 is running out. The possible trend reversal is attributable to the US inflation data of 10 November which, signaling a slowdown in the growth of consumer prices, favored the hypothesis that the Federal Reserve slows the pace of interest rate hikes.

US Dollar: Managers see end of rally

The possible Fed turnaround is encouraging prudence among managers. According to John Bromhead, strategist at Australia & New Zealand Banking Group, with the US Central Bank “approaching its hawkish high, the premium to the dollar is declining.” The expert also quotes the European energy crisis which appears more manageable than a few months agofor which “the context is improving and the safe-haven role of the dollar is diminishing”.

Morgan Stanley strategists wrote in a note that the Fed will be forced to halt due to weak global growth and lower inflation. So, “US rates and the US dollar will fall in 2023”they stated. Opinion confirmed by the London investment company M&G Investments, according to which “the Fed will become more cautious regarding the tightening of the cost of money”. Goldman Sachs, on the other hand, takes a different view. The American investment bank believes that the US dollar still has three to six months ahead to runespecially against Asian currencies.


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