Speculators scaled back their bullish bets on short-term US interest rates futures from their highest level in over 11 years earlier this week as they considered a possible rate decrease from the Federal Reserve, government data released on Friday showed.
Their net longs on Eurodollar futures fell to 1.447 million contracts on Tuesday, down from 1.514 million a week earlier which was the highest since April 2008, according to Commodity Futures Trading Commission data.
On July 18, New York Fed President John Williams, an influential member at the central bank, said the Fed may need to take steps to combat downside risks even if the economy is doing well. His remarks triggered a rally in US rates futures as traders thought the Fed might lower key lending rates by an aggressive half a point at its July 30-31 policy meeting.
However, those bets faded after the New York Fed later that day said the comments were not about upcoming policy action. In addition to paring their net longs in Eurodollars, speculators piled on bearish bets in federal funds futures.
Their net shorts in fed funds grew by 109,490 contracts, the most since June 2018, to 144,020 on Tuesday. As of late Friday, fed funds contracts implied traders fully expect a rate-cut from the Fed next Wednesday. They suggested traders expect only a 19% chance of a half-point cut, according to CME Group's FedWatch program.
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