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Speculators raised bullish US dollar bets this week to the highest level in nearly five months, as investors were encouraged by strong US economic data that reinforced expectations of an interest rate hike by the Federal Reserve in 2016.
The strong dollar position was also bolstered by short bets against the British pound and euro in the wake of Britain's vote to leave the European Union. The value of the dollar's net long position increased to $13.66 billion in the week ended July 26 from $10.42 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. That was the highest level since February 2 and the 10th straight week of net dollar long positioning by speculators.
The week's trading ended prior to the release on Friday of second-quarter US gross domestic product data, which showed the economy grew by 1.2 per cent on an annualised basis.
Bets on Fed rate hike
Economists polled by Reuters had expected 2.6 per cent growth. The dollar had been buoyed by a much stronger-than-expected June US non-farm payrolls report, which came out two weeks ago, and inflation, retail sales and jobless claims data that pointed to a strengthening US economy.
The data helped bolster bets the Fed would raise rates by year-end, with Fed funds futures rates showing traders had priced in a greater-than-50-per cent chance of a rate hike earlier in the week, according to CME Group's FedWatch.
"People were positioned for a hawkish Fed,” said Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto, California. “When everybody assumes something is going to happen, everybody's positioned that way. Then the news comes.”
Brexit has also spurred an increase in net short positions against both the British pound and the euro. Sterling net-short positions rose to 80,572, the highest since June 2013. Speculators placed more than 100,000 net short contracts against the euro, the largest net-short position in the continental currency since late January.
The Reuters calculation for the aggregate US dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars.
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