Asset Managers Are Increasing Their Bets on a Falling Dollar at the Wrong Time

Asset managers raised their bets on a weaker dollar before stronger-than-expected U.S. jobs data sent the greenback to a one-month high.

Funds increased their net short positions in the dollar for the sixth straight week, the longest streak since 2022, according to Commodity Futures Trading Commission data compiled by Bloomberg.

A government report on Friday showed U.S. wage growth beat all economists' estimates in May, sparking a rush into the dollar as traders pushed back when they expect the Federal Reserve to cut interest rates.

safe haven

Goldman Sachs Group Inc. strategists, including Kamakshya Trivedi, wrote in a note that the strength of the U.S. labor market should help support the dollar's strength during the Federal Reserve's monetary policy decision this week.

They added: We continue to believe that the dollar will be the safest haven for portfolio flows in the coming months amid uncertainty over the upcoming elections and rising returns on assets.

The dollar rose against all its Group of 10 peers on Friday, with the Bloomberg Dollar Index posting its biggest one-day gain since January after jobs data dampened expectations for a near-term Federal Reserve policy shift.

Test of expectations

Those who expect the dollar to fall may face a new test on Wednesday when U.S. policymakers update their interest rate forecasts for the first time in three months.

Forty-one percent of economists expect the Fed to signal two cuts to its closely watched interest-rate dot plot, according to the median estimate in a Bloomberg survey.

This is in line with the number of economists who expect the dot plot to indicate one or no rate cut.

The US currency continued to rise in early trading on Monday in Asia, with the Bloomberg Dollar Spot Index rising for a third straight day.

There is little chance they will rule out a rate cut this year altogether due to the strength of the labor market, which could lead to higher bond yields, a broad-based rise in the dollar and weakness in stocks, Kathleen Brooks, director of research at XTB, wrote in a note.