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Peter Davis

An writer at FOMOdrive

  • Jul 12, 2023
  • 2 min read

Hedge funds bet against the US dollar

100 US Dollar bills laying in flat surface

The dollar index is attempting to surpass the lows it reached in June.

The dollar is pushing the limits following Friday's Non-Farm Payroll report.

Hedge funds are making wagers that the dollar will decrease in value due to a change in the Federal Reserve's policy.

Morgan Stanley believes that the current high yields, combined with the weak global economic growth, could lead to a strengthening of the dollar.

FOMOdrive's team of analysts commented that the U.S. labor market report released on Friday caused a decrease in the dollar and equity indices, as job creation was lower than expected but hourly wages were higher than anticipated.

Hedge funds on Wall Street have, for the first time since March, bet against the dollar in anticipation of a reversal of the Federal Reserve's policy, according to Bloomberg. Last week, the funds opened a net short position of 20,091 contracts, compared to a net long position of 5196 contracts the week prior.

Expecting the Fed to be nearing the end of its monetary tightening cycle, speculators are selling the dollar, which is evidenced by the cooling of the labor market.

In June, Non-Farm Payrolls (NFP) grew by 209 thousand, which was less than the expected 225 thousand. This result increased the confidence of those who are bearish on the dollar, believing that the Federal Reserve will begin easing policy sooner than anticipated.

The data on consumer inflation, to be released on Wednesday, will be the next significant data for the markets following the NFP.

Tom Lee, the former JPMorgan strategist and Fundstrat founder, believes that the US CPI (Consumer Price Index) will increase by 0.25% month-on-month in June, rather than the 0.3% that analysts are predicting. He believes that if the inflation rate is lower than expected, it could lead to a surge in the stock market, but could have a negative effect on the value of the dollar.

According to Scotiabank, there is a risk of the US dollar weakening in the short and long term.

Given the weak growth of the global economy, Morgan Stanley expects the dollar to be strengthened by its one of the highest yields of any major global currency, thanks to the Fed's rate hike cycle.

The FOMOdrive analyst team notes that the departure of the dollar from its consolidation range could have serious repercussions for the entire foreign exchange market. The EUR/USD pair is nearing 1.10, and the formation of a downtrend in DXY could lead to a steady rise in the pair to 1.13-1.14 by the end of this quarter, with the potential for GBP/USD to go above 1.30.

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