Business Maverick

Business Maverick

Asset managers ramped up bearish US dollar bets at the wrong time

Asset managers ramped up bearish US dollar bets at the wrong time
A worker holds a magnifying glass over a 50 subject $20 dollar note sheet after being printed by an intaglio printing press at the US Bureau of Engraving and Printing in Washington, DC, US, on Tuesday, May 21, 2024. (Photo: Al Drago/Bloomberg)

Asset managers added to wagers that the dollar will fall just before stronger-than-expected US jobs data catapulted the greenback to a one-month high. 

Funds boosted their net short dollar positions for a sixth-straight week, the longest streak since 2022, according to data from the Commodity Futures Trading Commission compiled by Bloomberg. US payroll growth exceeded all economists’ estimates in May, a government report showed on Friday, sparking a stampede for the greenback as traders pushed back expectations for when the Federal Reserve will cut interest rates. 

A resilient US labor market “should help set a firmer tone for the dollar” into this week’s Fed policy decision, Goldman Sachs Group Inc. strategists including Kamakshya Trivedi wrote in a note. “We still think the dollar will prove to be the ‘safest haven’ for portfolio flows over coming months” amid upcoming election uncertainty and strong asset returns. 

The dollar advanced against all its G10 peers on Friday, with Bloomberg’s greenback gauge posting its biggest one-day gain since January after the jobs print bludgeoned expectations for a near-term Fed policy pivot. Dollar bears may see their resolve tested again on Wednesday when US legislators update their rates forecasts for the first time in three months. 

A 41% plurality of economists predict the Fed will signal two cuts in its closely watched “dot plot”, according to the median estimate in a Bloomberg survey. That matches the amount expecting the forecasts to show just one reduction or none at all.

The US currency extended gains in early Monday trading in Asia, with the Bloomberg Dollar Spot Index rising for a third day.

“There is a small risk that they could rule out rate cuts for this year completely due to the strength of the labor market,” Kathleen Brooks, research director at XTB, wrote in a note. That may “trigger a surge in bond yields, broad based dollar strength and weakness for equities,” she said.

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