What Happens When the U.S. Dollar Is No Longer A Hedge Fund Hotel?

Risks for a further squeeze lower for the greenback, says Bank of America.

In the wake of last week’s dovish decision from the Federal Reserve, investors have been throwing in the towel on the U.S. dollar.

But Bank of America Merrill Lynch’s proprietary positioning data suggests there’s still another major shoe to drop for the greenback. In a note to clients, FX Strategists Myria Kyriacou and Athanasios Vamvakidis illustrate that hedge funds’ long position in the U.S. dollar remains substantial relative to the past 12 months and to other investors.

“We’re not going to see an overall strengthening trend of the dollar across the board,” he said. “We do expect the dollar to be stronger against the euro, not against the yen.”

After largely treading water to open the year, the U.S. dollar has weakened as market participants have had doubts about the extent to which monetary policy stateside can diverge from the rest of the world. The U.S. dollar index and trade-weighted broad dollar index are both off roughly five percent from their recent respective peaks.

Full article: What Happens When the U.S. Dollar Is No Longer A Hedge Fund Hotel? (BloombergBusiness)

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