International Money Market currency speculators upped their bets against the dollar in the week to August 8, in the process accumulating record bets on the euro and sterling strengthening, data released on Friday showed.
The overall net short dollar position held by IMM accounts in that week against six major currencies swelled to $17.6 billion from $13.2 billion the week before, according to Reuters calculations. Those currencies are the euro, yen, sterling, Swiss franc and Canadian and Australian dollars.
The increase in bets against the greenback came in a week that covered several key dollar-negative developments. They included the Bank of England's surprise interest rate hike, the European Central Bank's anticipated rate hike, a below-consensus US employment report and the Federal Reserve's decision to break a two-year-long monetary policy tightening campaign and keep interest rates on hold.
Yet since Tuesday, the dollar has recovered ground, exiting Friday's US session around its highest levels of the week on a basket basis. In this light, it's more than likely that these short dollar positions reported on Friday have been pared back to some degree.
Still, in the week to Tuesday, net long euro positions on the IMM were increased to 92,108 contracts from 73,429 contracts the previous week, worth around $14.77 billion, according to Reuters calculations. Net long sterling positions increased to 55,626 contracts from 45,003 the week before, worth around $6.58 billion.
Being "short" a currency is effectively a bet it will weaken over a certain period of time, while being "long" is effectively a bet it will strengthen.
Extreme market positioning often suggests a currency is poised to snap back, largely because investors are uncomfortable holding increasingly large exposure in a currency over an increasing length of time and would be tempted to reduce their risk exposure.