Hedge funds are growing ever more bearish on the dollar, underscoring speculation the Federal Reserve will slow the pace of its interest-rate hikes.
(Bloomberg) — Hedge funds are growing ever more bearish on the dollar, underscoring speculation the Federal Reserve will slow the pace of its interest-rate hikes.
Bets against the greenback swelled to 30,457 contracts last week, the most since August 2021, according to data from the Commodity Futures Trading Commission on eight currency pairs. Swap contracts show investors now expect the US policy rate to peak below 5%, down from 5.06% after data on Friday showed US wage growth cooled last month.
“Pillars of dollar strength are starting to recede,” said John Bromhead, a strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Last week’s minutes show the Fed is approaching terminal rate and will be pausing soon.”
The dollar’s fortunes have wilted in recent months as funds from Jupiter Asset Management to JPMorgan Asset Management bet the Fed will rein in the pace of rate increases. Still, some strategists say the greenback may soon resume its upward momentum as the US central bank vows to keep tightening.
US inflation data for December and remarks from Fed Chair Jerome Powell this week may help set the tone for the dollar’s next move. The Bloomberg Dollar Spot Index fell 0.34 Monday, after sliding 1% Friday following weaker-than-expected wages and services data.
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The sliding greenback boosted Asian currencies Monday, with the South Korean won strengthening about 2%. Australia’s dollar led gains among its Group-of-10 peers, advancing as much as 0.9% to 69.40 US cents, its highest in four months.
While the US dollar may still enjoy some bouts of strength, “currencies in emerging market Asia are likely to be beneficiaries from their links to stronger Chinese growth,” Goldman Sachs Group Inc. strategists including Kamakshya Trivedi wrote in a note. “Our new forecasts suggest that the dollar has peaked.”
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