Dollar positions increased

Hedge funds have been betting on the dollar to rise this month, even as the currency has fallen on softening economic data and expectations that the Fed’s aggressive rate-hiking cycle is nearing an end. An indicator of leveraged funds’ net dollar exposure, which shows their long positions in the greenback against eight currencies, rose to its highest level since February 2022 as of Nov. 21, according to data compiled by Bloomberg from the Commodity Futures Trading Commission (CTFC). The indicator rose to just above its peak in April, with 103,042 net long positions, after bottoming out in March with 72,000 net sales. The surge in long dollar positions comes as the Bloomberg Dollar Index is heading for its worst month since November. The index suffered its worst week since July earlier this month, erasing gains from the start of the year as investors increased their bets on the Fed’s rate hikes and brought forward expectations of a central bank rate cut. The Bloomberg Dollar Index fell for a third straight session on Monday as Treasuries rose after a five-year note auction saw strong demand. “We often think of U.S. dollar performance in terms of interest rate differentials and the interaction with risk appetite. The dollar is caught between two influences here. Stronger risk appetite, driven by the rise in global equity markets, has weakened the dollar. But the dollar’s overall yield advantage has not softened, and that could ultimately act as a speed limit on further weakness,” said Dominic Bunning, director of FX research at HSBC Europe.