Currency speculators trimmed bets against the US dollar in the latest week, data from the Commodity Futures Trading Commission showed on Friday. The value of the dollar's net short position shrank to $7.1 billion in the week ended August 31, down from a net short position of $11.12 billion in the previous week, according to CFTC and Reuters data.
Speculators had been long the dollar for most of the first half of 2010 but began betting against it regularly in July as US economic data suggested economic recovery was slowing. Speculators cut their long positions on the Japanese yen but increased them on the Swiss franc in the latest week.
The Swiss franc is viewed as a safe haven amid fears the global economy is slowing. While the yen is also viewed as a safe haven, the currency's rapid advance in recent weeks prompted Japanese authorities to announce easing measures on Monday. A strong yen makes Japan's exports more expensive and reduces their competitiveness.
That made some speculators more cautious on the yen though traders and analysts alike said that, short of direct intervention in the foreign exchange markets, the yen is bound to test its all-time high against the dollar of 79.75 yen set in April 1995. On Friday the dollar traded at 84.45 yen. This week's CFTC data showed net long yen positions fell to 49,904 from 51,069 contracts last week and total long yen positions fell slightly to 61,219 contracts from 63,086 contracts, in the prior week.
Scotia Capital says record net yen long positions posted at 65,920 contracts on March 25, 2008, with record yen longs at 94,654 on March 4, 2008. The larger the number of long yen contracts, the more speculators will have to scramble to reverse positions to prevent losses in the event of a decline in yen and a rally in the dollar.
A long position is a bet that a currency will rise in value, while investors who go short expect it to fall. The Reuters calculation for the aggregate USD position is derived from the net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc, Canadian and Australian dollars.
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