Major players are selling the US dollar at a record pace

Record numbers of institutional investors are offloading the dollar.

Investors have taken a bearish stance to an unprecedented degree in expectation of the Federal Reserve's monetary policy tightening cycle coming to an end.

On Wednesday, the Federal Reserve is expected to announce a rate increase, which may be its final one.

Record levels of bets were placed by institutional investors that the dollar would weaken further against major currencies.

Bloomberg reported that, according to data from the Commodity Futures Trading Commission (CFTC), the total net position to sell USD in eight currency pairs rose by 18% over the week, reaching 568,721 contracts.

The dollar's net short position increased in tandem with the euro and the pound, while the yen short position has seen the most significant decrease since March 2020.

Players of significance are getting ready for the dollar to become even weaker due to the belief that inflation in America will keep decreasing, which will cause the Federal Reserve to finish the rate increase cycle soon.

The National Australia Bank predicts that inflation in the US will significantly decrease in the upcoming months, which will make the market think that the Federal Reserve has finished its rate hikes and may even reduce rates by the end of the year. This will be a major factor in weakening the US dollar.

Standard Bank has previously noted that the dollar is entering a multi-year downtrend as the Federal Reserve's rate-tightening cycle transitions into an easing cycle. This will cause the dollar to decline, even if other central banks also reduce their rates.

The overnight swap market appears to be anticipating a 25 bp increase in the Fed rate this week, followed by a decrease early next year.

ING anticipates that the dollar's corrective rally could persist this week if the Federal Reserve persists with its tightening policy, despite the fact that short positioning on the dollar appears to be excessively crowded.