US Dollar Strengthens Amid Expectations for Hawkish Fed Outlook
Hedge funds' positions on the dollar have finally turned positive for the very first time since March. This shift has been fueled by the resilient US economy, increasing the potential that Fed officials will stick with forecasts for at least one more rate hike this year.
Leveraged funds and other big players collectively held 18,000 net long bets on the dollar across eight major peers in the week ended September 12, compared to 25,175 net short positions the week prior, according to Commodity Futures Trading Commission statistics. The market was just holding the biggest net short against the greenback in more than two years by the end of July.
The momentum in the $USD(USDindex.FX$ was driven by the biggest slide in euro longs since January, along with expectation for the Fed to hold interest rates higher for longer.
With the US data remaining relatively strong, we believe the dollar rally will continue," Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a client note.
We expect a hawkish hold from the Fed this week that leaves the door open for further tightening," he said. "On the other hand, virtually every other major central bank that's meeting this week is expected to follow in the ECB's footsteps and hike rates 25 basis points whilst signaling a peak is near."
On November, we think that further labor market rebalancing, better news on inflation, and the likely upcoming Q4 growth pothole will convince more participants that the FOMC (Federal Open Market Committee) can forgo a final hike this year, as we think it ultimately will," the investment bank's strategists wrote in a report. The strategists expect to see some "gradual" rate cuts next year if inflation continues to cool.
Fed fund futures show investors expect the Federal Reserve to keep interest rates on hold in the 5.25% to 5.5% range on Wednesday. The market is more concerned about the so-called dot plot that lays out rate guidance for coming years.
Source: Bloomberg
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Jokester Be Helms : Funny printing fake money to help HFs. Do you have a clue what your actually talking about, in the aspect of why they are actually an legally raising rates??