US dollar net longs tumble as Fed rate hike likelihood diminishes


US dollar net long position fell from $32.26 in the previous week to $24.0 billion according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to August 25. The release of Federal Reserve’s July 28-29 meeting minutes last Wednesday reinforced investors’ expectations that the Federal Reserve will delay raising interest rates. Several policymakers had expressed concerns that the fall in commodity prices and slowing global growth may weigh on US inflation. Policy makers had mentioned in previous statements they need to be reasonably confident inflation will rise toward the 2% target level in medium term, and disinflationary pressures due to falling commodity prices and slowing global growth increase downside risks for inflation. Investors sold dollars as lower likelihood of interest rate hike diminished dollar’s attractiveness. At the same time global equity selloff, which was prompted by worsened global economic outlook, increased haven demand for euro and yen. This resulted in reduction in net short bets in euro and yen. As is evident from the Sentiment table, the sentiment improved for all major currencies except for the Swiss franc and Australian dollar, and British pound is now held long against the dollar.

The euro sentiment continued to improve. The net short bets in euro narrowed $3.26bn to $9.5bn, with euro’s share falling considerably to about 30% of long US dollar position. The euro net short position fell as investors increased gross longs and covered shorts. The Japanese yen sentiment improved remarkably as investors covered shorts and increased gross long contracts with net short position narrowing $4.95bn to just $4.1bn, less than half of previous week’s net short position. The Japanese yen no longer holds the second highest short bets against the US dollar with net short bets in Canadian and Australian dollars slightly bigger than the yen’s. The positive dynamic of the previous week continued also for the British Pound as investors continued to increase gross longs in British Pound while they cut gross shorts. The British Pound is now held net long $0.3bn after a weekly increase of $0.7bn in bullish bets on the Pound.

The Canadian dollar sentiment improved for the second week with the net short position narrowing $0.6bn to $4.4bn. Investors increased considerably gross longs as they built also gross shorts. The Australian dollar sentiment deteriorated with net short bets widening by $0.8bn to $4.5bn as investors cut gross longs and increased gross shorts. Swiss franc sentiment continued to deteriorate with the net short position widening $0.4bn to $1.6bn. Investors increased gross shorts while they cut gross longs .