Speculators reduced long bets on the US dollar for a second straight week, as investors continued to pare back overextended positions on the greenback and worried about US President Donald Trump's trade and currency policies. The value of the dollar's net long position was $24.44 billion in the week ended January 17, from $24.95 billion the previous week, according to data from the Commodity Futures Trading Commission released on Friday and calculations by Reuters.
After a sharp rally following Trump's victory in November that saw a 3 percent surge for the month, the dollar has come back down to earth, undermined by uncertainty surrounding the new president's policies, specifically a stimulus plan that was promised during his campaign.
The dollar had rallied the last two months on the back of Trump's campaign promises of fiscal stimulus and tax cuts, but that rally ran out of steam in the run-up to Trump's inauguration.
For the month of January, the dollar index has fallen 1.3 percent so far, on track for its weakest monthly performance since March last year.
"If the dollar continues to weaken, we're rapidly running out of room and dollar bulls may be forced into a full-fledged capitulation, which has yet to take place at current levels," said John Hardy, head of forex strategy at Saxo Bank, in Copenhagen.
"If the dollar firms, on the other hand, the gains could come quickly as frustrated bulls have been without a case, ironically since the Fed's rate hike in December, which marked the end of the most recent dollar advance," he added.
Net short contracts on the Mexican peso, meanwhile, rose in the latest week to 73,321, the largest since early October.
The peso has been the most vulnerable to comments from Trump. His persistent attacks on Mexico over immigration and jobs taken from Americans have damaged the peso, which fell to a record low against the dollar this week.
"The outlook for the peso remains bearish amid elevated economic uncertainty," said Joe Manimbo of Western Union Business Solutions in Washington.
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