Speculators Are Long on the Us Dollar: Should You?
WHAT YOU SHOULD KNOW
- The Fed plans to continue raising interest rates depending on the incoming data at the next few meetings
- The euro is in trouble. It has lost nearly 12% of its value against the dollar since the beginning of the year
The value of net long positions on the US dollar rose to $13.37 billion in the week ended Aug 16, while net short positions on the euro increased. This comes according to calculations by Reuters based on data from the US Commodity Futures Trading Commission. It marks the first time that net long dollar positions have increased in four weeks.
The CFTC’s most recent data showed that euro net shorts increased to 42,784 contracts, the most significant number since February 2020.
Despite this rate increase, the dollar dropped to a three-week low against the yen on July 27. This was likely because market participants viewed Fed Chair Jerome Powell’s post-meeting comments as less hawkish than expected.
The minutes from the July meeting showed that the Fed plans to continue raising interest rates depending on the incoming data at the next few meetings. Their overall outlook is supportive of the dollar.
One of the lead analysts at XM broker writes: “Despite signs of a potential split emerging within the FOMC (Federal Open Market Committee) about how high rates should go and some visible cracks in the economy, a full-blown recession still seems some way off and policymakers’ resolve to contain inflation is indisputable. This is why Treasury yields have been able to recover from their lows plowed at the start of the month, giving the US dollar, which has been benefiting from renewed safety flows, an extra helping hand.”
The euro is in trouble. It has lost nearly 12% of its value against the dollar since the beginning of the year and is currently trading at 1.00387. This is due to the acute energy crisis in Europe from the Russia-Ukraine war and the rising recession risks.
Cryptocurrencies have also witnessed a similar trend as Bitcoin is down from all-time highs of $68600 to $21000.
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