Investing.com - A surge in bearish dollar bets by asset managers points towards a potential downturn for the currency, fueled by predictions of decelerating inflation in the United States which could prompt an end to the Federal Reserve’s 16-month policy-tightening streak.
Institutional investors, encompassing pension funds, insurance companies, and mutual funds have ramped up their net short position on the US dollar by 18%, reaching 568,721 contracts during the week leading up until July 18th. This data was gathered from eight different currency pairs through insights provided by Commodity Futures Trading Commission and consolidated by Bloomberg.
The Bloomberg Dollar Spot Index registered its most significant dip in half a year on July 12th following reports that June saw a more substantial slow-down in inflation than economists had anticipated. Projections for this week suggest that while The Fed will likely increase its primary rate marginally, it might commence reducing its benchmark early next year according to overnight-indexed swaps.
Rodrigo Catril, a top foreign-exchange strategist at National Australia Bank Ltd., shared his perspective via Bloomberg Television stating that there is growing confidence among market players about notable decreases in U.S inflation over upcoming quarters. He further added that this trend may lead them to expect not only an end but also potential reductions in rates from The Fed around year-end – another factor contributing significantly towards the weakening of US dollar expectations.
Amongst all currencies analyzed for this data compilation by Bloomberg, asset managers amplified their dollar net shorts predominantly against the euro and pound while simultaneously diminishing yen shorts comprehensively since March last year.
This week anticipates several crucial central bank policy verdicts including those from The Fed on Wednesday followed closely by European Central Bank and Bank of Japan decisions due later this week.