In a recent wave of major central bank policy meetings, hedge funds have clearly shown their preference for the mighty dollar. The latest data from the Commodity Futures Trading Commission reveals that speculators are heavily betting on a stronger dollar, particularly against G10 currencies. The net long dollar position against a range of G10 and emerging currencies has surged to $13.5 billion, the highest since September 2022. Specifically, the net long position against G10 currencies reached $17.64 billion, a level not seen since July 2022. This surge has largely occurred in the last few weeks following policy meetings by the Federal Reserve, European Central Bank, Bank of Japan, and Swiss National Bank.
The Dollar Emerges Victorious
From a relative rates perspective, the dollar has emerged as the winner. The Federal Reserve raised its median ‘dot plot’ and long-run neutral rate projections, while the Bank of Japan’s rate hike was perceived as ‘dovish’. Additionally, the European Central Bank is expected to ease policy before the Fed, and the Swiss National Bank was the first major central bank to cut rates. Even those who have reservations about the dollar’s long-term prospects acknowledge its appeal in the short term. Capital Economics senior economist Jonathan Peterson mentioned that signs of continued economic resilience in the US could support the dollar in the short term.
Weight on the Yen and Swiss Franc
Hedge funds have shown a significant increase in their net short positions on the Japanese yen, reaching 129,106 contracts as of March 26. This near-record level of short positions indicates a bearish outlook on the Japanese currency. Similarly, hedge funds have also grown their net short positions on the Swiss franc to the largest in almost five years, standing at 22,627 contracts. These bets are valued at more than $3 billion, reflecting a strong sentiment against the Swiss currency. Moreover, funds have been reducing their net long euro positions, signaling a $4.2 billion bet on the euro appreciating. These trends are the smallest since September 2022.
Hedge funds are heavily favoring the dollar over other major currencies, as evidenced by their significant net long positions and short positions on the yen and Swiss franc. The recent policy meetings by central banks have further reinforced the dollar’s attractiveness in the short term. While the long-term outlook remains uncertain, the dollar’s current strength is clearly driving hedge funds’ investment decisions.