Blue Bay asset management, which has more than $60bn in assets under management, recently cashed in its short dollar position, and amp capital cut its long bets on emerging market currencies. K2 asset management is also cutting its exposure because of concerns that the dollar, the global reserve currency, may suddenly rebound.
if they are right, investors who are short of the dollar, which is currently at a two-year high, may see their earnings collapse this summer. So far, there is no sign of the Fed’s latest intervention in the dollar market since the end of March.
Nader naeimi, head of dynamic markets at amp capital in Sydney, said: “shorting the dollar is becoming a very crowded trade. Risks may emerge at any time, and there is room for the dollar to reposition. ”
over the past four months, the US dollar has been falling against other G-10 currencies, and short positions have continued to increase. At the end of July, leveraged funds flooded into the yen, followed by a net long position in the euro for the first time in two years.
George boubouras, head of research at K2 assets, said: “excessive volatility could lead to a substantial rebound in the dollar in the short term. This can be painful, especially for some emerging markets, which tend to be hit hard by a stronger dollar. ”
one of the drivers may come from increased geopolitical risk, which tends to stimulate volatility and hedge bids. On Friday, the US dollar spot index of the US dollar registered its biggest one-day gain in more than a month.
according to the volatility index of Deutsche Bank and JPMorgan Chase, although market activity tends to be stable in summer, the fluctuation of foreign exchange market runs through July.
August may also mark the beginning of a seasonal flow in favor of the US dollar. A measure of the dollar’s strength shows that the dollar’s strength has been on the rise from August to November over the past decade, with the dollar rising by an average of 3% in the quarter before the last seven presidential elections.
However, for dollar bears, any rebound will be short-term and a time to make more bets. David ward, managing director of Golden Horse fund management PTE, said: “the obvious risk is a sharp correction in the market or tail events,” such as a stronger than expected recovery in the US economy, but “it looks increasingly unlikely that this recovery will happen in the near future.”