New York: A busy few days await dollar traders after hedge funds ramped up wagers on the currency’s strength by the most since August 2014.
Large speculators increased bets that benefit from greenback appreciation by a net 92,293 contracts in the week through Nov. 17, data from the Commodity Futures Trading Commission showed Friday. A spate of economic updates scheduled before the US Thanksgiving Day holiday on November 26 may encourage further positions, as the Federal Reserve scrutinises data for signs it should raise interest rates in December. The dollar was little changed this week versus a basket of 10 major peers, after reaching a seven-month high versus the euro on November 18.
Investors are looking for a catalyst to revive dollar gains after pricing in an almost 70 per cent likelihood of the first US rate increase in almost a decade next month. With an indicator of momentum suggesting currency gains may be overdone, the greenback risks running out of steam before the Fed decision if economic reports reinforce speculation for a slow pace of increases.
“There’s a premium on data at this point,” said Quincy Krosby, a market strategist in Newark, New Jersey, at Prudential Financial Inc., which oversees about $1.3 trillion. “If the package of data is stronger than consensus estimates, you could see the dollar gain some momentum.”
The greenback added 1.2 per cent against Europe’s common currency this week in New York, rising to $1.0646 per euro. It gained 0.2 per cent to 122.81 yen.
Detail Oriented
Releases on manufacturing and personal spending, housing and inflation, and durable goods orders and overall growth proffer a snapshot of the US economy next week.
Monetary policy may hinge on such gauges, with officials emphasising that a December rate increase “would depend on the implications for the medium-term economic outlook of the data received over the upcoming inter-meeting period,” according to minutes from the Fed’s October meeting published Nov. 18.
A measure of the greenback’s momentum against the euro, known as the 14-day relative strength indicator, closed at 66.9, near the 70 level that some traders view as a signal the currency has reached extreme levels and may reverse.
“We’ve got a couple of hikes priced in for next year; for the dollar to continue strengthen, the market’s going to have to price more than that,” said Lee Ferridge, the Boston-based head of macro strategy for North America at State Street Global Markets.
