Zhitong Finance APP learned that soaring US interest rates, relatively strong US economy and severe asset prices have attracted investors to buy the US dollar, pushing the US dollar to rise about 22% against a basket of currencies in the past year. However, some investors are increasingly worried that dollar trading will become overcrowded, and if the reasons for holding the currency change and investors try to close all at once, the dollar may experience a sudden reversal.
As of the week ending September 20, speculators in the Chicago International Monetary Market held a net long position of USD 10.23 billion, which is lower than the high of nearly USD 20 billion in July, but this is the third long time that traders have held long positions in USD since 1999, for 62 weeks.
In the Bank of the US 9 Global Fund Managers Survey, about 56% of respondents said long US dollars is the most crowded trade, which is the third consecutive month that the US dollar has maintained this position in the survey.
In the two weeks starting in mid-July, the dollar index fell nearly 3%, and investors may have tasted the reversal. At that time, some investors bet that U.S. inflation might slow down to a level that would allow Feder to stop aggressive hike rate . Eric Leve, chief investment officer of
Bailard, said that when US dollar trading becomes crowded, once the concept changes, the market's reaction will be very fierce, and it is easy to see a 10%-15% reverse fluctuation against the euro or the Japanese yen. The
USD index rose by more than 20% in 2009 and 2015, and fell by 7.7% and 6.7% respectively in the following two months.
Investors say that while crowded long positions may lead to a reversal of the dollar, significant changes are needed to happen.
Calvin Tse, head of global macro strategy at the American Bank of France and Pakistan, said that the decline in US interest rate volatility and normalization of European energy prices are prerequisites for the US dollar to enter a structural bear market, but these situations will not happen soon.
Although the U.S. interest rates are higher than many other economies, almost all major central banks, including the European Central Bank and the Bank of England, are raising interest rates, and the attractiveness of currencies in these regions is also increasing.
Any sign of a slowdown in U.S. inflation could revive expectations of the Fed's turn to dovish, thereby eliminating the key drivers of the dollar's rise.
Brandywine Global portfolio manager Jack McIntyre said a severe blow to the U.S. economic outlook could also hurt the dollar. The Fed's aggressive tightening policy has exacerbated market concerns that the U.S. economy may move toward recession next year.
McIntyre said it could be painful for investors to prepare for a pullback as the dollar hits a decades-long high.
