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Peter Davis

An writer at FOMOdrive

  • Dec 19, 2023
  • 3 min read

Hedge funds are betting on the fall of the US dollar, but there are nuances

At the start of the new week, the dollar had decreased in value.

Investors in hedge funds are predicting that the value of the US dollar will decrease following the Federal Reserve's meeting.

The demand for the dollar has decreased to its lowest point in three years.

Radical alterations have been implemented to Goldman Sachs' predictions for the US dollar.

There is a risk that the dollar may drop below 135 yen according to Citigroup.

Over the past week, the dollar experienced a decrease in value, however, it regained some of its losses on Friday. On Monday, the US currency dropped in comparison to the majority of its major counterparts.

Following the Federal Reserve's public announcement of a policy reversal, the dollar index experienced a significant technical break last week. This resulted in a 2% decrease in two days, the most significant drop since July, according to the FxPro analyst team.

Aggressive leveraged funds, according to Bloomberg citing CFTC data, began holding more short positions against the US dollar than long ones for the first time since September after the Fed meeting.

Bets on the dollar rising against the yen decreased by over 20%, while bets on the dollar declining against the British pound almost doubled.

Citigroup predicts that the yen could correct to below 135 per dollar next year, following a period of unusual dollar strength. They also anticipate that within two to three years, USD/JPY could drop to 120.

Following the US Federal Reserve's strongest indication yet of an upcoming rate cut, Goldman Sachs has significantly altered its predictions for foreign exchange rates.

First and foremost, the bank revised its forecasts for currencies that are affected by the interest rate level, such as the Japanese yen, Swedish krona, and Indonesian rupiah.

Bloomberg reported that the gap between the premiums of one-month call and put options on the dollar has decreased to nearly nothing, the lowest it has been in over three years. This indicator is seen as a reliable measure of the demand for the asset in question.

Traders are no longer willing to pay more than necessary for instruments that will be profitable if the US dollar increases in value.

The FxPro analyst team suggests that there is a strong possibility of a bottom forming near current levels in the dollar, followed by a reversal to growth. This should be aided by the markets returning to reality.

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