Hedge Funds: Hedge Funds Short on Dollar for First Time Since 2018

Hedge funds have decreased in share prices for the first time since May 2018.  A decrease in price for the world’s reserve currency will continue as the market remains unpredictable.  Net futures held by funds against eight currencies dropped to minus 7,881 contracts.  According to the Commodity Futures Trading Commission, this was a result of high expectations and bets on the euro.  The U.S. dollar is in trouble and is facing pressure after the Federal Reserve promised unlimited liquidity for the economy.  This is largely due to the Coronavirus pandemic and the resulting market conditions.  

Additionally, assets in the U.S. have seen a massive decrease in demand as inflation has come to a near halt.  Falling interest rates and monetary policy from the fed have induced this reaction.  According to Yujiro Goto, “The drop in the dollar is a reversal from the surge in March, especially given the currency had looked overvalued…A slide in U.S. real yields has also accelerated that move.”  

With the success of competing economies, dollar strength has dropped seven percent.  Those economies’ successes are heavily correlated with their ability to tame the virus.  According to Barclays, the dollar may receive support in U.S. stimulus negotiations.  On the other hand, Deutsche Bank views stimulus negotiations as another toll for the dollar.  For now, the potential rebound for the U.S. dollar is highly uncertain.