Dollar Rises as Hedge Funds Position for Further Gains in 2016

Is the Dollar Bull Run Over?
  • Speculators added bets on dollar gains after Fed liftoff
  • Greenback rises versus euro, Swiss franc and British pound

The dollar climbed the most in nearly two weeks versus the euro after a report showed hedge funds boosted bets on a strong greenback for the first time in a month.

The U.S. currency advanced after Commodity Futures Trading Commission data for the week ended Dec. 22 showed speculators added bets on the greenback following the Federal Reserve’s decision to raise interest rates. Higher Treasury yields also supported the currency by making dollar-denominated investments more attractive.

With U.S. borrowing costs rising from virtually zero, investors see a catalyst for dollar appreciation. The greenback is forecast to gain versus eight of its 10 major peers next year, extending this year’s 8.6 percent rally as higher interest rates in the U.S. contrast with monetary stimulus elsewhere. Speculators are adding positions as a result, lifting wagers for the first time in a month.

“We do see the dollar continuing to strengthen throughout next year,” said Eric Viloria, a strategist at Wells Fargo & Co. in New York. “There could be some potential, in the near term or early part of next year, for the U.S. dollar to remain in this consolidative phase, or possibly even correct lower, given the sizable dollar-long positioning, and until it becomes more clear the pace of Fed tightening.”

The dollar gained 0.4 percent at $1.0922 per euro as of 5 p.m. in New York. The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 of its peers, rose for a second day, ending the greenback’s longest losing streak since April. The measure added 0.1 percent to 1,228.65. The dollar was little changed at 120.46 yen.

Rally Resumes

While the dollar slumped for six consecutive days after the Fed increased rates for the first time since 2006, speculators see the currency’s rally resuming in 2016.

Bets on further gains by the dollar versus eight major peers outweighed those on a slump by a net 349,144 contracts in the week through Dec. 22. That’s up from 322,224 contracts a week earlier.

Wagers on dollar strength remain far below the highs of the year. Net longs rose to 448,675 in January, the most on record, CFTC data show.

Hedge funds also added bets on yen weakness for the first time in five weeks, boosting net shorts to 30,367 contracts. They increased wagers on euro declines to 161,047, the first addition in three weeks.

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