Speculators pared bullish bets on the US dollar in the latest week, with net longs falling to their lowest in 2-1/2 months, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. The value of the dollar's net long position slid to $25.29 billion in the week ended January 12, from $28.78 billion in the previous week. This was the third straight week that investors reduced net long dollar positions.
The dollar's allure has been diminished by turmoil in financial markets caused by the decline in oil prices and China's stock market losses. There is a growing perception that these external factors could further slow the Federal Reserve's already gradual tightening policy. Friday's weak US economic reports have further bolstered that view. Interest rates futures markets have now priced in just one rate increase this year, compared with expectations of at least three hikes.
"US data to me has been worrisome. I think we're nearing a top in the dollar against the euro and yen," said Lee Ferridge, head of macro strategy for North America at State Street in Boston. "I don't think we're going to see three or four hikes this year. We may have a couple of hikes and that has already priced in." The first two week's China- and oil-led market losses have also resulted in gains in the yen, a traditional safe haven in times of stress and uncertainty.
This week, Japanese yen net longs totalled 25,266 contracts from 4,103 contracts previously. This week's yen net longs were the largest since October 2012. Speculators also reduced net shorts on the euro to the lowest since November. This week net euro short contracts totalled 146,451, from the previous week's 160,643. Like the yen, the low-yielding euro tends to gain in times of market anxiety because these currencies are often used to fund investment in risky assets. They consequently rise back up when there is a retreat from those assets. The Reuters calculation for the aggregate US dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.