File photo: The Federal Reserve building was taken on August 22, 2018 in Washington, DC, U.S .. Reuters / Chris Watty

June 17, 2021

By Saqib Iqbal Ahmed and Saikat Chatterjee

(Reuters) – A hawkish move by the Federal Reserve Board of Governors could wake up the dollar collapse, push US currencies to their highest levels in months and rewind bearish positions to generate more profit. He stokes the expectation that he has sex.

The dollar is on track for a maximum two-day percentage increase against a basket of major currencies over the 15-month period from Thursday to mid-April, the day after the central bank postponed its first interest rate hike expected in 2023. It is at its highest since then. The face of rising inflation.

Bets on the dollar have been a popular affair for months, as the Fed’s claim to maintain its ultra-dovish stance despite rising inflation pushed the currency to a nearly three-year low earlier this year. . ..

A slight hawkish change in Wednesday’s statement appears to change that calculation: The prospect of a faster-than-expected rise in US interest rates is the dollar facing investors seeking returns on currencies such as the euro and the yen. . Increase the attractiveness of. For example, Goldman Sachs and Deutsche Bank have recommended investors reduce their bets on the euro’s rise after the Fed meeting.

Simon Harvey, Senior Forex Market Analyst at Monex Europe, said:

Big bets on the US currency could accelerate recent moves if more threats to earnings cause investors to reverse their bearish stance. Net bets on the dollar in the futures market hit a three-month high of nearly $ 18 billion last week, according to CFTC data.

Stephen Jen, portfolio manager for hedge fund Eurizon SLJ, said:

Momtil Poyariev, head of currencies at BNP Asset Management in New York, bought the dollar against the Japanese yen after the Fed meeting.

“The Fed has waited patiently, but I know that one day the Fed (will turn to the hawks),” he said. “I didn’t expect it to be now.”

Due to the central position of the dollar in the global financial system, its fluctuations tend to extend to a wide range of assets.

The strong dollar tends to weigh on the balance sheets of US multinationals, making it disadvantageous to return foreign income in their national currency.

The rise in greenbacks has helped boost inflation this year as many commodities are priced in dollars, making them less affordable to foreign investors as the dollar rises. It can also help to remove it.

“Risk assets and stocks are tough given rising interest rates,” said Kaspar Hense, portfolio manager at Bluebay Asset Management, which oversees $ 60 billion. Hens fell below the euro after the Fed meeting on Wednesday.

However, some market participants remain bearish on the dollar, noting that the Fed’s monetary easing policy, including the purchase of $ 120 billion in US Treasuries per month, remains in effect. Other central banks are expected to follow the Fed’s lead by slowly normalizing monetary policy, which could narrow the interest rate differential between the United States and other economies.

Goldman Sachs believes the global recovery will weaken the dollar in the long run, but a report released by Societe Generale on Thursday set a year-end price target of € 1.19 to $ 1.27 on Thursday.

Paresh Upadiya, Director of Monetary Strategy and Portfolio Manager at Amundi, said: Pioneer asset management.

“Now, a lot of it depends on what other central banks in the G10 and emerging markets are doing as a result. “

Upadhyaya has reduced its short position in the dollar ahead of the Fed meeting, but believes the currency will fall eventually. Harvey of Monex Europe wants to see if data in the coming weeks will strengthen the case for a stronger-than-expected recovery.

But others think there might be room for more dollar profit.

The weak dollar was “a popular affair for discretionary and systematic managers,” said David Gorton, chief investment officer of hedge fund DG Partners. “The Fed’s hawkish surprise probably revealed how much some of these short positions have been extended.”

(Report by Saqib Iqbal Ahmed in New York and Saikat Chatterjee in London, supplementary report by Mayaya Keidan and Gertrude Chavez-Dreyfuss, edited by Ira Iosebashvili and Dan Grebler)

Analysis: Swinging Bear May Boost Profits As Federal Reserve Wakes Sleeping Dollar

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