Speculators' bearish bets on the US dollar hit their largest since February 2013, boosted by expectations that the Federal Reserve will take its time in raising interest rates this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net short position rose to $4.19 billion in the week ended April 26, from short contracts valued at $1.85 billion in the previous week. Speculators were short the dollar for a second straight week. So far in 2016, the dollar has fallen 5.7 percent after gaining more than 9 percent last year. The dollar was on track for its worst yearly performance since 2007.
The culprit has been a generally dovish Fed that has been proceeding with caution on raising interest rates given persistent global risks to the US economy. The US central bank held interest rates unchanged on Wednesday and while it left the door open to a hike in June, its statement implied it was in no hurry to follow on from its December rate hike.
"The US dollar has remained under pressure in the aftermath of the FOMC decision, with a rising inflation expectations and falling US nominal yields depressing US real rates," wrote BNP Paribas in a research note. "We expect this process to continue in the week ahead, with softer readings on Monday's manufacturing and Friday's (US) jobs report likely to bolster Fed concerns about slowing US activity."
In other currencies, euro net shorts continued to decline, to their lowest in nearly two years. Net euro shorts fell to 39,667 contracts, from 46,917 short contracts the week before. BNP Paribas expects an improving outlook for the euro against the dollar. "We remain long this pair (EUR/USD), targeting a move up to $1.16," the French bank said.
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