Currency market’s bet against the US dollar is getting riskier by the day Neal Kimberley warns that the currency market’s aggregate short position on the US dollar is looking vulnerable, with the euro zone performing worse than expected and the latest US data reflecting economic health
Data for the week ending April 24, released on Friday by the US’ Commodity Futures Trading Commission (CFTC), may have indicated “a sizeable reduction in the [International Monetary Market’s] aggregate bearish bet” on the greenback, but nevertheless still quantified the remaining aggregate US dollar short position at US$23.9 billion.
“If the recent [euro zone] data weakness turns out to be more protracted, we should expect the ECB to react by postponing the timetable they have forward guided. EURUSD could trade back down to 1.15 or so.”
The Swiss National Bank still views the franc as highly valued and will continue to pursue its ultra-accommodative monetary policy and remains willing to intervene in the foreign exchange market if necessary.
As for the British pound, as speculators discovered to their cost last week when Britain’s first-quarter gross domestic product data underwhelmed, betting on sterling’s strength remains a risky business.
With the Bank of Japan still sticking to its own ultra-accommodative monetary policies, and with higher US yields available, a number of Japan’s life insurers are now contemplating boosting their exposure to US dollar-denominated bonds on an unhedged currency basis.
With the attractiveness of other currencies arguably lessening and US monetary policy set to tighten further, the currency market feels short and caught with its aggregate bet against the US dollar.
Source: SCMP
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