Speculators' net long bets on the US dollar rose slightly in the latest week to the largest position since mid-January 2017, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position was $23.67 billion in the week ended August 21, up from $23.17 billion the previous week. Speculators were net long dollars for a tenth straight week, after being short for 48 consecutive weeks.
To be long a currency means traders believe it will rise in value, while being short points to a bearish bias. US dollar positioning was derived from net contracts of International Monetary Market speculators in the yen, euro, British pound, Swiss franc as well as Canadian and Australian dollars. 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 long position valued at $24.95 billion, compared with a net long position valued at $24.35 billion a week earlier.
"I am surprised to see that speculators are still so long the dollar," said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto. "We should be seeing a shift in positioning based on the fact that European data surprises are actually starting to outpace their equivalent in the United States," he said.
"A number of the big driving forces - fiscal stimulus and the flight to quality - that had been happening through the last couple of months, appear to be running out of steam," Schamotta said. The dollar index fell to a two-day low on Friday after Federal Reserve Chair Jerome Powell said steady rate hikes are the best way to protect US economic recovery, but suggested the federal funds rate was getting closer to neutral.
Powell's statement that rate hikes are keeping job growth strong and inflation under control was a high-profile endorsement of the US central bank's current monetary policy approach after President Donald Trump earlier this week criticized the pace of rate hikes. The dollar, which had rallied hard since mid-April, has lost steam in recent days. On Friday, the dollar index, which measures the greenback against a basket of six major currencies, was down about 1 percent for the week - posting its second straight weekly loss.
"The dollar is nearing overvaluation territory here and some of the forces propelling it higher are likely to dissipate in coming weeks and you could see a quite extensive portfolio rebalancing before the beginning of September," Schamotta added. The net short bets on the British pound rose to the largest position since May 2017, the data showed. Speculators trimmed their net short position on bitcoin Cboe futures to 1,266 contracts, the smallest net short position since the futures were launched in December, the data showed.
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