The latest data from the Commodity Futures Trading Commission (CFTC) reveals a clear trend among hedge funds – a strong preference for the dollar. Speculators are increasing their net long dollar position against a variety of currencies, particularly G10 currencies such as the Japanese yen and Swiss franc. The surge in dollar position has been most notable in the weeks following major central bank policy meetings, including those of the Federal Reserve, European Central Bank, Bank of Japan, and Swiss National Bank.
Relative Rates Perspective
From a relative rates perspective, the dollar has emerged as the strong contender among major currencies. The Federal Reserve’s decision to lift the median ‘dot plot’ and long-run neutral rate projections, alongside other central banks’ policy decisions, has made the dollar a favorable choice for hedge funds. Even experts who are cautious about the dollar’s long-term outlook acknowledge its appeal in the short term.
Speculators’ actions indicate a significant bearish sentiment towards the Japanese yen and Swiss franc. Hedge funds have increased their net short yen position significantly, with a value of $10.65 billion, making it one of the largest bets against the yen in recent years. This increased bearishness has contributed to the yen hitting a 34-year low against the dollar. Similarly, hedge funds have also grown their net short Swiss franc position, reaching levels not seen in almost five years.
In contrast to the strong dollar position, hedge funds have been reducing their net long euro position. The current position stands at 31,194 contracts, indicating a $4.2 billion bet on the euro appreciating. This reduction in euro position is a recent development, as funds continue to show more favor towards the dollar in the current market environment.
Overall, the data from the CFTC points to a clear preference for the dollar among hedge funds in recent weeks. The strong dollar position, particularly against G10 currencies like the yen and Swiss franc, reflects a broader trend in the currency markets. As central banks continue to adjust their monetary policies, hedge funds are positioning themselves accordingly to take advantage of the opportunities presented by the current market dynamics.