Speculators' net short dollar bets slipped to a seven-week low this week, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday, as investors priced in more interest rate increases by the Federal Reserve.
The value of the net short dollar positions, was $8.17 billion in the week to February 20, compared with net shorts of $8.19 billion the previous week. Net short positioning on the greenback has declined for three straight weeks. US dollar positioning was derived from net contracts of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars.
To be short a currency means traders believe it will fall in value. In a broader measure of dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real, and Russian rouble, the US dollar posted a net short position valued at $11.62 billion, down from $12.03 billion the week before. The prospect of further interest rate increases than what the market has priced in has bolstered the dollar over the last few weeks. Concerns about rising inflation after a prolonged period of stagnant price gains have raised the possibility that the Fed could tighten more than expected this year and the next, an expectation that has boosted yields and lifted the dollar.
"Higher US yields are an argument in favour of investing in the US currency, in particular as yields in Europe and Japan remain stuck in negative territory," said Ulrich Leuchtmann, an analyst at Commerzbank in a research note. "In other words: the bargain prices of US bonds are a buffer against possible dollar weakness and thus make the dollar more attractive." The dollar index though was still down 2.4 percent so far this year, after losses of nearly 10 percent in 2017.
Meanwhile, speculators' net short position on bitcoin Cboe futures fell to 1,608 contracts, down from a net short position of 1,875 contracts in the prior week, the data showed. Mirroring the dollar's net positioning, bitcoin's net short contracts fell for a third straight week. Bitcoin has recovered after hitting its lowest rate this year below $6,000, as investors bought it back as they prepare for a rally that would take the digital currency to even higher levels.
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