Funds slash bullish dollar bets in half: McGeever

investing.com:

By Jamie McGeever

ORLANDO, Florida (Reuters) -The rise in U.S. rate cut expectations for next year seems to have prompted hedge funds to cool their optimism on the dollar, potentially weakening a key plank of support for the currency in the coming months.

The latest Commodity Futures Trading Commission (CFTC) data shows that funds cut their net long dollar position against a range of major and emerging currencies to $4.5 billion in the week ending Nov. 14 from $10 billion the week before.

The $5.5 billion week-on-week swing is the biggest since July and second largest this year, and comes as interest rate futures markets had moved to price in up to 100 basis points of Fed rate cuts by the end of next year.

That dovishness has been tempered in recent days, but not by much. Traders have consistently underestimated the Fed's resolve to keep rates elevated, but they are sticking to their guns and banking on hefty easing in the second half of next year.

If the latest CFTC figures are any indication, this has prompted hedge funds to put the brakes on their dollar-buying spree. Whether that's a temporary pause or a more lasting move will depend on the Fed.

«Large USD weakness requires Fed cuts and better ex-US growth, but these conditions are not met yet,» JP Morgan's currency strategy team wrote in their 2024 outlook.

Funds' $10 billion net long dollar position in the week ending Nov. 7 was the biggest bullish bet on the greenback since October last year and a huge turnaround from the net short position worth more than $20 billion in mid-July.

This momentum suggested a base was being formed for another prolonged dollar upswing, and coincided with a 7% rise in the dollar index. But the dollar has slid 3% in November, which