The Fed rate cut bets fade, the dollar sets the longest consecutive rise in nearly three years
The Bloomberg Dollar Spot Index has risen for the 8th consecutive day, setting a record for the longest continuous increase since April 2022. Strong US employment reports have eliminated the possibility of a Fed rate cut, pushing the dollar to its highest level since mid-August. Traders are reconsidering their bets on US easing policies, leading to a general appreciation of the dollar against currencies of the ten-country group. Investor preference for US assets has increased, leading to a gradual reduction in short interest positions on the dollar
According to the Wisdom Financial APP, the unexpectedly strong US employment report last week has led the market to rule out the possibility of the Federal Reserve cutting interest rates by another 50 basis points this year. Since then, the US dollar has surged to its highest level since mid-August. The Bloomberg Dollar Spot Index has risen for the 8th consecutive day, marking the longest winning streak since April 2022.
Following a series of unexpectedly positive economic data in the US, traders are forced to reconsider their bets on US easing policies. This has reduced the necessity for the Federal Reserve to continue cutting interest rates significantly amid slowing inflation.
Erik Wytenus, Head of Investment Strategy for Morgan Stanley Private Bank EMEA, stated in an interview, "We often use the word 'resilience' to describe the healthy state of the US economy, and this is hard to argue against." He added that this has driven investors' preference for US assets.
So far this year, except for the British pound, the US dollar has been appreciating against the Group of Ten (G10) currencies. In early trading on Wednesday local time, the US dollar rose against both the pound and the euro, leading the US dollar index to rise nearly 2% in the past 8 days.
According to two traders based in Europe, companies have been buying the US dollar against the pound in recent days, while hedge funds continue to increase their long positions in the US dollar against the yen. These two traders requested anonymity as they were not authorized to speak publicly.
Since the release of the US employment report last week, bearish euro option structures have been in demand, while market sentiment towards the US dollar ahead of next month's US election is the most optimistic in over three months. In the past 11 trading days, the premium for buying US dollar call options compared to major currencies has risen for 10 days.
Neil Jones, Managing Director of TJM Europe, stated, "Short positions on the US dollar are gradually decreasing." He added that long-term investors from Asia and the Middle East are selling the euro and pound, no longer taking a long-term bullish view on these currencies