Investors are pouring huge amounts of cash into US money mar...

Investors are pouring huge amounts of cash into US money market funds — almost $90 billion — and they're doing it fast. In the first half of August alone, a staggering $88.2 billion flowed into these funds.

What is this driven by? Simple. Big companies are betting on juicy yields before the Federal Reserve cuts interest rates next month.

A money market fund is more than just your ordinary savings account. They are progress, holding short-term assets such as cash and government debt.

As treasury yields are expected to decline, institutional investors — large entities that think of managing money on behalf of others — are investing heavily in these funds, hoping to lock in better interest rates.

According to EPFR, a tracker that monitors these flows, the surge in August this year was the biggest rise we have seen in the first half of the month since November last year.

These investors are bracing for what they think interest rates will fall. They're doing this now because they know that treasury yields tend to fall before and after the Federal Reserve cuts interest rates.

Now, if you're wondering why people don't put their money on stocks or bonds, the answer is simple. Money market funds are still seen as a safer bet, especially when the market is on a roller coaster ride.

See Also Nigeria's FIRS Proposes New Bill to Regulate Crypto and Modernize the Tax System

Last year was an impact on these funds, and interest rates reached a 23-year high to withstand inflation. Net inflow? A record $1.2 trillion, according to EPFR. It was driven by retail investors, but now it seems like big institutions are joining in.

The Federal Reserve is not expected to cut interest rates in one fell swoop. Industry insiders predict that adopting a more gradual approach means that money market funds' yields will slowly decline over time.

Weak US employment data earlier this month raised some concerns about a recession, but these concerns were mitigated by stronger economic data. Despite this, the market is still betting on a cut of just under 1 percentage point by the end of the year.

Meanwhile, USD/JPY has been taking a hit and is likely to continue falling. Some analysts believe this weakness is likely to continue until the end of the year, and for several major currencies.

This is after another day of dollar sell-off, and traders are awaiting revised US labor data. ING marked these revisions as potential “downside risks” for the dollar.

Arbitrage trading involves borrowing money in a currency with a low interest rate (such as yen) and using that money to invest in high-yield assets elsewhere. It's a popular strategy, especially with Japan's interest rates remaining at their lowest point.

Also see Is it realistic for Bitcoin's dominance to soar to 60% by the end of the year?

But as the yen rises, these trades may become less attractive, which could keep the dollar on the defensive.