Speculators pared back favourable bets on the US dollar for a second straight week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday, reflecting expectations the Federal Reserve would raise interest rates just once this year. The value of the dollar's net long position fell to $6.56 billion in the week ended September 20, the data showed, one day before the Fed kept interest rates unchanged and flagged a December rate hike. The previous week's long US dollar position was $7.13 billion.
"The US dollar remains vulnerable in the aftermath of the September 21 FOMC meeting, with US real yields having retreated sharply," said Daniel Katzive, head of FX strategy for North America at BNP Paribas in New York. "We expect the Fed will ultimately deliver a rate hike in December ... but with the Fed outlook highly data and financial conditions dependent, markets are unlikely to increase pricing for a December hike much beyond the 56 percent chance currently reflected in rates markets regardless of public comments at this time."
So far this year, the dollar index has fallen 3.2 percent, down from 2015's gains of more than 9 percent. The sterling net short position, meanwhile, fell again this week to 58,686 contracts, the smallest since mid-July. This reflected the fact that UK economic data have surprised to the upside in the immediate aftermath of the referendum in which Britons voted to leave the European Union.
But BNP's Katzive said sterling remained at risk as UK economic reports going forward are likely to highlight the continuing challenges ahead for the British economy. Markets have also begun to focus more on what could be a contentious Brexit negotiation process. Sterling so far in 2016 has been down roughly 12 percent, following losses of more than 5 percent in 2015. 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.