Hedge funds catapulted bearish wagers on the euro to a near one-year high as markets bet the European Central Bank is done raising interest rates.
(Bloomberg) — Hedge funds catapulted bearish wagers on the euro to a near one-year high as markets bet the European Central Bank is done raising interest rates.
Leveraged investors ramped up net short positions on the shared currency to 23,306 contracts during the week ended Sept. 19, the most since Oct. 11, according to data from the Commodity Futures Trading Commission. Longer-term asset managers also pared back bullish bets on the currency for a sixth week.
“Europe is struggling with anemic growth and sticky inflation, while the US is enjoying above trend growth that is backed by a strong consumer,” said Ashvin Murthy, chief investment officer at hedge fund AVM Capital Pte. in Singapore. “This period of US exceptionalism is supporting the US dollar and we expect the euro to remain under pressure for the next six months.”
The euro has fallen for 10 straight weeks, the longest run of losses since its launch more than two decades ago, as faltering economic growth hurt demand for the currency. Cooling inflation and rising fears of a recession have spurred traders to bet on the possibility of the ECB cutting rates by 25 basis points next July, adding to bearish sentiment against the euro.
Eurozone inflation data due this week may provide a fresh catalyst for investors to short the currency, which has slid more than 2% versus the dollar this quarter. The euro was little changed at $1.0650 in Asia trading Monday.
Capital Economics sees risks of the euro falling back to parity against the dollar by year-end, while RBC Capital Markets is forecasting the currency to test the $1.02 level by the second quarter of 2024, according to data compiled by Bloomberg.
“Slowing growth momentum in the eurozone economy” are helping to spur the bearish bets, said Carol Kong, a strategist at Commonwealth Bank of Australia. “To the extent euro has been overbought, the increase in shorts wasn’t too surprising.”
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