The dollar fell to its lowest levels since April 2018 against a basket of six other reserve currencies. For the first time since May 2018, hedge funds have shifted to a net short on the US dollar, signaling a continuation of the downtrend, according to Bloomberg.
Source: TradingView
The downtrend began in March and coincided with the COVID-19 outbreak. To mitigate the negative consequences, the Fed cut rates to zero and pledged to expand monetary stimulus if necessary, in addition to steps already taken. Such actions led to a drop in yields on 10-year U.S. Treasuries to a historic low. This made U.S. assets less attractive in the eyes of global investors.
From the March peak, the DXY index fell 6.75%.
Dynamics of the real yield on 10-year U.S. Treasuries and hedge funds’ net position on the U.S. dollar. Source: Bloomberg
According to the U.S. Commodity Futures Trading Commission report, total hedge-fund net position on the dollar in futures and options against eight other currencies by the end of last week reached minus 7,881 contracts.
Bloomberg analysts interviewed did not rule out a correction in the dollar. They added that they doubt its durable character given the approaching U.S. presidential election and the Fed’s pledge to keep the policy rate near zero until the end of next year.
“The long-term downtrend [in the dollar] is evident, especially compared with countries that are currently pursuing QE and are showing a stronger recovery. Any rallies should be viewed as an opportunity to sell the American currency,” said Ashwin Murti, founder of the AVM Global Opportunity Fund.
As reported by Forklog, a special material examining the impact of the coronavirus crisis on the markets and Bitcoin’s status as a safe-haven asset.
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