Macroscope | 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
There are almost 24 billion reasons why the US dollar could strengthen. Away from the weak Hong Kong dollar narrative, there is an even bigger story, one where the foreign exchange market has made a massive structural bet against the US dollar that looks increasingly stale and vulnerable.
By definition, such a trade is predicated on individual market participants’ views that mass investor opinion will judge that circumstances favour other currencies over the greenback. But circumstances change.
The currency market should think twice about the sustainability of this short US dollar position. It is becoming increasingly clear that the allure of alternative currencies, such as the euro in which much of the CFTC’s aggregate short US dollar position is concentrated, is fading even as reasons to justify US dollar strength re-emerge.
