Speculators reduced positive bets on the US dollar as profit taking reduced net longs after they had risen seven straight weeks, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. The value of the dollar's net long position dropped to $20.87 billion in the week ended November 15, from $22.36 billion the previous week.
Last week's net long dollar position was the largest in 9-1/2 months. The victory of US President-elect Donald Trump last week cemented a dollar uptrend based on expectations for increased infrastructure spending that could stoke inflation and lift interest rates. A week after the US presidential election, the dollar index has rallied nearly 7 percent. But the dollar was on a rising path months before the election, and many analysts believe that the dollar is ripe for a pullback, at least in the near term.
"Trump's win caused a tectonic shift in the financial markets that sent bonds crashing lower, the US dollar to multi-year highs and stocks to record highs," said Kathy Lien, managing director of FX strategy, at BK Asset Management in New York. "Pullbacks in the dollar should remain shallow, but it has been 10 to 11 days since we've seen a meaningful sell-off in the greenback versus the euro and yen."
For dollar/yen, Lien said this is the longest stretch of gains since May 2015 and while the next major level of resistance isn't until 112 yen, a pullback is likely before that target is reached." Japanese yen net longs, meanwhile, posted their lowest level since early June, with 20,676 contracts, data showed, with the yen a casualty of the dollar's strong rally.
As of Friday, the greenback had recorded a two-week gain of climbed 7.3 percent against the yen, its steepest since January 1988 and its second-strongest performance in the era of floating exchange rates. Sterling net short contracts, on the other hand, declined in the latest period to 80,313. That was the smallest net short on sterling since late September.
While investors expect weaker growth and turbulence around talks on Britain leaving the EU to undermine the pound next year, some have begun to argue that a 20 percent fall in the currency since last December is enough to deal with Britain's large external deficit and help rebalance the economy. That has helped the brighten the outlook for the pound.
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.