Hedge funds boosted wagers on dollar strength for a fifth week as traders prepare for a month in which the Federal Reserve may raise interest rates for the first time in almost a decade.
Bets on further appreciation versus eight major peers outweighed those on a slump by a net 428,298 contracts in the week through Nov. 24, according to a release from the Commodity Futures Trading Commission. That’s up from 411,208 contracts a week earlier.
Speculators are seeking to capitalize on any dollar strength that stems from an increase in U.S. interest rates next month. The Fed will consider whether it’s appropriate to raise rates from near zero, where they’ve been since 2008, when it meets Dec. 15-16. That contrasts with a wave of easing elsewhere that will likely see the European Central Bank add stimulus on Dec. 3.
"Markets are particularly building expectations that the Fed will begin normalizing policy in December, and this is why we’re seeing speculators go long the dollar," said Sireen Harajli, a currency strategist at Mizuho Bank Ltd. in New York.
Traders boosted dollar bets to a record in January, when so-called net longs rose to 448,675, CFTC data show.
That bullishness also coincided with a widening gap between expected monetary policy in the U.S. and Europe, but while the ECB came through with bond purchases, the U.S. held off tightening. Futures contracts show investors expect it’ll be different this time, projecting a 74 percent likelihood that the Fed will raise rates this December.
Fed Chair Janet Yellen addresses Congress on Dec. 3, just hours after the ECB announces its latest policy decision.