Dollar weakens as investors exit bullish bets

The dollar dropped (NYBOT:DXH14) versus most of its major peers amid speculation investors were exiting bets on further gains before year-end.

The U.S. currency advanced versus eight Group of 10 currencies last week as the Federal Reserve said it will reduce the size of its bond-purchase program and reiterated that benchmark rates will remain low. Australia’s dollar (CME:A6H14) added to its biggest advance in more than a month. The pound (CME:B6H14) approached a two-year high versus the dollar.

“It would be difficult to say that the dollar is suffering today, it’s just not building on last week’s gain,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said by phone. “That’s not a reason to be bearish at this point. The tone continues to feel risk-on.”

The dollar was little changed at 104.08 yen as of 10:12 a.m. New York time. It climbed to 104.64 on Dec. 20, the highest since October 2008. The greenback slid 0.2% to $1.3698 per euro. Japan’s currency dropped 0.2% to 142.57 per euro.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, slipped 0.2% to 1,019.85, after rising 0.5% last week. The measure is up 3.5% this year.

Budget Accord

A budget deal in Washington and the Fed’s plan to taper its bond buying will allow for a higher growth estimate, International Monetary Fund Managing Director Christine Lagarde said on NBC’s “Meet the Press” yesterday without specifying updated figures. U.S. stocks rose Dec. 20 after a report showed the economy expanded in the third quarter at a faster rate than previously estimated.

Hedge funds and other large speculators increased bets the yen will decline against the U.S. dollar to almost the highest level since 2007, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the yen compared with those on a gain -- so-called net shorts -- was 130,223 on Dec. 17, compared with net shorts of 129,711 a week earlier.

The measure rose to 133,000 in the period ended Dec. 6, the most since 2007, when it climbed to a record 188,000.

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