NEW YORK: US dollar net short positioning fell this week to the lowest level since mid-December, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday, as investors continued to cover massive negative bets on the currency.
The value of the net short dollar position fell to $29.09 billion in the week ended Feb. 16, from $29.53 billion the previous week, data showed. US dollar net shorts have fallen for four straight weeks. Short bets on the greenback hit a nearly 10-year high in the week of Jan. 19.
US dollar positioning was derived from net contracts of International Monetary Market speculators in the Japanese yen, euro, British pound and Swiss franc, as well as the 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 greenback posted a net short position of $29,756 this week, from $30.08 billion the week before.
The dollar index has modestly recovered from last year’s sell-off, rising about 0.4% so far this year, from losses of 6.7% in 2020.
Analysts have attributed part of the gains to short-covering on the dollar.
Other analysts, on the other hand, have pointed to the rise in US Treasury yields, which have been priced in increasing inflationary pressures triggered in part by what is expected to be the Biden administration’s massive stimulus package.
The benchmark US Treasury 10-year yield hit a one-year high of 1.363% on Friday.
Should US inflation pick up at a faster pace than expected, analysts said that could prompt the Federal Reserve to tighten monetary policy earlier than thought, which should strengthen the dollar. “Holding onto short US dollar positions could be a risky proposition for what could eventually be a US-led real rates back-up,” said Mazen Issa, senior FX strategist at TD Securities in New York.
In the cryptocurrency market, bitcoin net shorts fell to 2,893 contracts in the latest week, compared with net shorts of 2,844 the week before. Bitcoin on Friday touched a market capitalization of $1 trillion, hitting yet another record high of $56,399.99 amid a slew of institutional demand that is grappling with the asset’s finite supply. The largest virtual currency has so far gained 70% this month and more than 300% in 2021.