The dollar is losing its luster among hedge funds and other speculative traders as investors become less certain about the outlook for U.S. interest rates.
For the first time since August, futures data show that the greenback is no longer the currency speculators are the most bullish on, after being supplanted by the yen. A gauge measuring bullish dollar bets compared to the three-year average fell in the most recent week, data compiled by JPMorgan Chase & Co. show.
“People are still long the dollar, but it’s down dramatically from a few months ago,” Kevin Hebner, a foreign-exchange strategist at JPMorgan, said by phone. “It’s not a passive thing, it’s a massive change from three months ago in terms of positioning.”
The U.S. currency has fallen out of favor as slowing economic growth led investors to question whether the Federal Reserve will have scope to raise interest rates soon, narrowing the monetary policy divergence between the U.S. and counterparts including Japan and the euro zone.
Before the Fed’s meeting beginning Tuesday, derivative traders expect the central bank to raise its near-zero policy rate in December, compared to a September lift-off foreseen at the start of the year.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has dropped 1.9 percent this month to 1,178.16 as of 11:21 a.m. in New York, set for the first monthly decline since June last year.
A Z-score is a standardized way to measure the degree to which an observation deviates from the mean in a normally distributed set of data.
Under the measure, the dollar’s Z-scope declined to 1.1 in the most recent period, the least since July 2014. A Z-score in the negative 1 to 1 range implies futures positions aren’t a barrier to underlying price trends. The 1.1 score suggest the dollar is modestly overvalued, JPMorgan said.
The actual amount of wagers for a stronger dollar fell to 324,940 contracts last week, from a record 448,675 in January, according to Commodity Futures Trading Commission data.