Speculators reduced bullish bets on the US dollar for a seventh straight week, with net longs dropping to their lowest level since mid-July 2014, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. The value of the dollar's net long position plunged to $12.60 billion in the week ended February 9, from $18.20 billion in the previous week. Net dollar longs came in below $20 billion for a second straight week.
The outlook on the dollar has soured since the beginning of the year as a global stock market meltdown and a plunge in oil prices have increased volatility across all asset classes, which could further slow the Federal Reserve's tightening policy. The dollar index is down 2.7 percent so far this year after gains of 12.18 percent in 2014 and 9.3 percent in 2015.
"The main reason why investors are selling dollars is because they no longer believe that the Federal Reserve will raise interest rates in 2016," said Kathy Lien, managing director at BK Asset Management in New York, "What's interesting is that (Janet) Yellen did not say anything in her testimony over the past two days to suggest that would be the case. Nonetheless, Fed fund futures are no longer pricing in a rate hike this year, validating the decline in the dollar."
Speculators also pared net shorts on the euro to the lowest level since the third week of October. This week net euro short contracts totaled 63,314 contracts, from 87,073 the previous week. In the midst of a massive quantitative easing program from the European Central Bank, the euro has actually gained so far this year, up 3.6 percent against the dollar. The Reuters calculation for the aggregate US dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.