Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Kicks Off Biden Era With Losing Streak as Short Bets Back

Published 20/01/2021, 12:42
Updated 20/01/2021, 13:00
© Reuters.

© Reuters.

(Bloomberg) -- Joe Biden’s administration may not be targeting a drop in the U.S. currency, yet his pick for Treasury secretary has just started one.

The dollar is heading for its longest losing streak in a month as Biden is set to start his presidency on Wednesday. The Bloomberg Dollar Spot Index has fallen every day this week, as Janet Yellen’s testimony to the Senate invoked an enduring era of low interest rates and the need for giant spending.

That has reversed a rebound in the dollar at the start of the year, which was making many investors nervous given shorting the currency was one of the most popular trades for 2021. Markets have taken Yellen’s comments as a green light to bet against the dollar again.

“Although the Biden administration may not specifically seek a weaker dollar, further depreciation is likely,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, citing a dovish Federal Reserve, more fiscal stimulus and investors unwinding exposure to U.S. assets accumulated over the last decade. “We expect pro-cyclical currencies like the euro, commodity-producer currencies and the British pound to benefit.”

Those currencies were among the biggest gainers on Wednesday, led by the Australian dollar, with sterling touching its highest since May 2018. That resumed a trend that saw the dollar gauge slide more than 5% last year. Hedge funds already boosted net dollar short positions to the highest in nearly three years in the week to Jan. 12, according to data from the Commodity Futures Trading Commission.

Funds that bought the dollar as it rebounded in the last couple of weeks were doing more of a rebalancing exercise rather than taking a real shift in view, according to traders in Europe.

The rush to bet against the dollar had been looking overcrowded last month at a time when Citigroup Inc (NYSE:C). was touting a drop of up to 20% this year and Morgan Stanley (NYSE:MS) was bracing for a tumble of up to 10%. Contrarians see prospects for more spending and distribution of vaccines as helping to buoy U.S. growth prospects and ultimately boosting the greenback.

“It has been a tricky start to the year for Group-of-10 FX, as the favored trades have not performed,” said Stephen Innes, a strategist at Axi. “But with Yellen putting a convincing and staunch dovish footprint on markets by supporting maximum policy overdrive, it should encourage more U.S. dollar shorts on the view that monetary and fiscal policy are singing from the same hymn sheet.”

©2021 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.