Speculators' net short dollar bets grew to the largest position since August 2011 in the latest week, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. 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 $22.77 billion in the week to April 10.
That compares with a net short position of $20.71 billion the previous week. To be short a currency means traders believe it will fall in value. In a wider measure of dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real and Russian ruble, the US dollar posted a net short position valued at $27.21 billion, compared with $24.97 billion the week before.
The short position was less a function of an outright bearish view on the dollar and more to do with the carry trade, Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto, said. The carry trade refers to a strategy in which investors sell a relatively low-yielding currency to fund the purchase of a higher-yielding currency.
"The euro-funded or yen-funded carry still looks pretty attractive," said Schamotta. "Right now you have a situation where those short dollar can roll that over fairly consistently with limited hedging cost," he said. Overall, the dollar's outlook continues to be cloudy, with worries over a potential trade dispute between the United States and China and a possible Western military intervention in Syria hurting the dollar's prospects, obscuring any benefit derived from a Federal Reserve that is on a tightening path.
Meanwhile, euro net longs rose to 147,463 contracts, the highest level since late January, CFTC data showed. "I suppose that was ahead of the ECB minutes and not really taking current data flow into account, but still, it's definitely a pretty confident, bullish landscape for the euro here," said Schamotta.
European Central Bank policymakers at a gathering last month expressed concern over the risk of a full-fledged trade war with the United States and fretted over the potentially harmful impact of the euro's strength, the minutes released this week showed.
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