Speculators reduced favourable bets on the US dollar for a second straight week, as investors remained skeptical about whether the Federal Reserve would raise rates this year despite a strong US non-farm payrolls report last month. The value of the dollar's net long position fell to $11.41 billion in the week ended August 9, from $12.81 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
"Latest US data released today (weak retail sales, PPI -producer price index) reinforce our belief that the Federal Reserve will find it difficult to eke out more than one rate hike this year, if at all, with a rising probability that the pace of US rate normalization thereafter will remain very gradual," said Samarjit Shankar, global market strategist, at BNY Mellon in Boston. Fed funds futures late Friday saw just a 6 percent chance the Fed would raise rates when it meets next month, down from 18 percent a week ago, according to the CME's FedWatch tool. For the December meeting, the probability of a Fed hike was 43 percent, from about 47 percent last week.
Analysts have said the Fed has not raised rates unless market participants have priced in at least a 60 percent chance in the month before it is expected to do so. So far this year, the dollar index has fallen 3 percent, down form 2015's gains of more than 9 percent. Data further showed that sterling net short positions, soared to 90,082 contracts this week, a record high. Speculators have been short sterling since November last year.
The pound has been pressured by actions of the Bank of England last week when it cut interest rates and restarted bond purchases in a move to mitigate the impact of Britain's vote to exit the European Union. Analysts see further scope for sterling weakness. Since Britain's vote on June 23, the pound has fallen more than 14 percent. Speculators, meanwhile raised net long positions on the yen to 48,831 contracts, their highest in a month.
BNY's Shankar said flows into the safe-haven yen have remained buoyant the past month, having picked up last December during a bout of global de-risking with worries about the slowdown in China. 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.