Speculators boosted net long bets on the dollar for a third straight week on expectations of multiple US rate hikes by the Federal Reserve this year, according to data from the Commodity Futures Trading Commission and calculations by Reuters. The value of the dollar's net long position was $25.43 billion in the week ended January 3, up from $24.17 billion the week before. This week's net long dollar position was the highest since the week of December 13.
There is much cause for dollar optimism especially in the wake of a December US jobs report that finally showed wage growth. Lackluster earnings and low inflation have prevented the Fed from raising interest rates and the rise in December wages suggested that the US economy was nearing full employment, analysts said. That should keep the Fed on track to raise interest rates as much as three times this year. The non-farm payrolls report is one in a series of economic numbers showing steady improvement of the US economy.
"We wouldn't be surprised to see some hawkish Fed talk this week, with the intention of preparing markets for the prospects of a first quarter rate hike," said ING in a research note. "Strong US inflation and growth data over the next month will likely see the reflationary uptick in US yields continue and this means a dollar buy-on-dips strategy remains attractive."
Meanwhile, net short contracts on the yen slipped to 86,764, after rising for nine straight weeks. The yen is tied to the dollar's fortunes overall, and stands to benefit the most should an overextended US currency falter. Kathy Lien, managing director FX strategy at BK Asset Management in New York, expects the dollar to consolidate in the 115-117.50 yen range.
"The Fed isn't going to be raising interest rates anytime soon so for the time being, gains for the overstretched dollar could be limited but at the same time, pullbacks ahead of Donald Trump's inauguration should be shallow," she added. The Reuters calculation for the aggregate US dollar position is derived from net positions of International Monetary speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars.
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