Shorting dollar is gaining favour after Fed’s pivot

BLOOMBERG

Betting against the dollar is growing in popularity after the Federal Reserve upended markets by signalling the end of its monetary tightening campaign.
Non-commercial traders — a group that includes hedge funds, asset managers and other speculative market players — boosted their bearish bets on the greenback, according to CFTC data compiled by Bloomberg.
More than 39,000 contracts are now tied to expectations the US currency will fall, up more than 10,000 from a week ago when the Fed was preparing to meet, the data show.
The currency has suffered a pronounced slump in the wake of that confab, when the Fed released updated economic projections forecasting additional monetary easing next year. That sent the Bloomberg Dollar Spot Index tumbling to the lowest since July and down more than 2% year to date, on track for the worst annual performance since 2020.
Indeed, while there are now more contracts betting on dollar weakness, the dollar value of those contracts has actually slipped to $5.5 billion, slightly lower than last week.
The dollar extended its drop on December 22 after the Fed’s preferred gauge of underlying inflation showed muted price gains, affirming the central bank’s pivot towards interest-rate cuts next year.
The Swiss franc rose to the strongest level against the US currency since 2015, while the euro and Norwegian krone rose to their highest levels since August.
Demand for options that benefit if the dollar appreciates fell to the lowest since June versus those that pay out if the greenback weakens, according to an index of one-year risk reversals, pointing to more weakness in the coming year.