(Bloomberg) — Hedge funds are growing ever more bearish on the dollar, underscoring speculation that the Federal Reserve may slow the pace of its interest-rate hikes.
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Bets against the greenback swelled to 30,457 contracts last week, the most since August 2021, according to data from the Commodity Futures Trading Commission on eight currency pairs compiled by Bloomberg. Swap contracts show investors now expect the US policy rate to peak at under 5%, down from 5.06% after data on Friday showed US wage growth decelerated last month.
“Pillars of dollar strength are starting to recede,” said John Bromhead, strategist at Australia & New Zealand Banking Group Ltd. “Last week’s minutes show the Fed is approaching terminal rate and will be pausing soon.”
After a standout year, the dollar has seen its fortunes wilt as funds from Jupiter Asset Management to JPMorgan Asset Management bet the Fed will rein in the pace of rate increases. But, some strategists say the greenback may soon resume its upward momentum as the US central bank vows to continue tightening policy.
US December inflation data and remarks from Fed Chair Jerome Powell due this week may help set the tone for the dollar’s next move. The Bloomberg Dollar Spot Index fell 0.3% Monday, after sliding 1% Friday in the week of weak wages and services sector data.
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The weaker greenback propelled a rally in Asian currencies Monday, with the South Korean won pacing the gains as it jumped more than 1%.
While the dollar may still enjoy some bouts of strength, “currencies in emerging market Asia are likely to be beneficiaries from their links to stronger Chinese growth,” Goldman Sachs Group Inc. strategists including Kamakshya Trivedi wrote in a note. “Our new forecasts suggest that the dollar has peaked.”
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