Speculators increased their bearish, net-short bets on the US dollar to $4.28 billion in latest week of trading, marking the 21st straight week of net-negative speculator dollar positioning, data from the Commodity Futures Trading Commission calculated by Reuters showed. It was the third straight increase in bearish positioning for the dollar and the largest net-negative position since Oct. 24.
The value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was an increase from last week's reading of$3.93 billion in the week ended Nov. 28. The dollar rose this week in foreign exchange currency markets, buoyed by optimism about a tax reform proposal before the US Congress and almost universal expectations for an interest rate increase next week by the Federal Reserve.
Investors are also beginning to expect the Fed to raise rates multiple times next year, with many analysts projecting four rate hikes in 2018. The tax proposal would slash corporate tax rates and could lead to faster growth and spending, prompting further interest rate increases by the Fed to keep a lid on inflation.
Higher interest rates make a currency more attractive for investors to hold. However, speculators continued to sell dollars, driving lower the overall level of dollar positioning. The dollar's value against six major currencies has risen over the past two weeks, but had fallen in the three previous weeks as investors began to doubt the tax cut's impact on the economy.
Another reason for the dollar's fall may have been the growing attractiveness of other assets, including bitcoin and other cryptocurrencies. Demand for the alternative currencies has crashed cryptocurrency websites and sent the value of bitcoin to an all-time high above $16,000 per bitcoin this week. "It's about the very nature of how other mediums of tender will affect fluctuations of the dollar," said Juan Perez, currency strategist at Tempus Inc in Washington. "There is a lot of uncertainty about how exactly this new medium will work and what type of adaptation will there be."
Perez added, "It really comes to a matter of the options." 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.