Speculators pared back net long bets on the US dollar in the latest week, as investors reduced positions that have become overextended due to a rally inspired by Donald Trump's victory in the US presidential election two months ago.
The value of the dollar's net long position was $24.95 billion in the week ended Jan. 10, from $25.43 billion the previous week, according to data from the Commodity Futures Trading Commission and calculations by Reuters.
The dollar this week posted its worst weekly performance since November as the positive effect of Trump on the market seems to be fading. At Wednesday's first press briefing before his inauguration next week, Trump failed to provide details on his much-touted fiscal stimulus plan of increased infrastructure spending and tax cuts. That disappointed stock and dollar bulls that had rallied on those themes.
The dollar struggled as a result, but market participants said the currency's downdraft was temporary.
"We do expect a return of dollar strength, with next week possibly providing the pivot point," said John Hardy, head of FX strategy, at Saxo Bank in Copenhagen.
"We move toward Donald Trump's inauguration on Friday as we still anticipate the Fed may hike again...already in March as Trump moves forward with an aggressive stimulus program. That will bring US rates higher."
Net short contracts on the euro, meanwhile, fell to 65,823, the lowest level since late June. The outlook on the euro, however, remained less upbeat than the dollar.
The European Central Bank is still doing massive quantitative easing and the region still faces considerable political risks.
Next week will be crucial for the euro as the ECB meets and its president Mario Draghi holds a press conference. ECB minutes showed that the December meeting's decision to extend quantitative easing to the end of the year was met with some resistance by a few ECB members.
The Mexican peso short contracts, on the other hand, rose in the latest week to 71,776, the largest since early October. The peso has been the most sensitive to comments from Trump. His continued assault on Mexico in terms of immigration jobs has damaged the peso, which has fallen to record low. The Reuters calculation for the aggregate US dollar position is derived from net positions of International Monetary speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars.