Optimism around the US dollar is spreading beyond hedge funds to broader asset management firms, fuelled by a resilient US economy and heightened geopolitical tensions, according to a report by Bloomberg citing new data from the Commodity Futures Trading Commission (CFTC).
The CFTC figures reveal that asset managers, including pension funds, insurance firms, and mutual funds, have significantly scaled back their net short positions on the dollar. As of 3 December, these positions stood at just $2.05bn, the lowest since April 2017, marking a dramatic reduction from a week earlier. Hedge funds, meanwhile, increased their bullish bets on the greenback by 9.3%, extending a positive stance they’ve held since October.
The Bloomberg Dollar Spot Index has climbed about 5% since hitting an eight-month low in late September. This upward trend reflects market positioning for higher US inflation under a Donald Trump presidency, as well as increasing demand for safe-haven assets amid global political turmoil.
Contributing to the dollar’s appeal are growing doubts about further interest rate cuts from the Federal Reserve. Last week, St Louis Fed President Alberto Musalem and San Francisco Fed President Mary Daly both signalled caution, while Chicago Fed President Austan Goolsbee projected significant rate reductions over the next year.
Geopolitical instability has also added to the dollar’s strength, with the fall of Bashar Al-Assad’s regime in Syria, political upheaval in South Korea following a failed martial law imposition, and a no-confidence vote against the French government, having all fuelled demand for safe-haven assets.
While the euro remains the dominant currency in asset managers’ portfolios, with $23.4bn in bullish bets, positions have fallen significantly from their May 2023 peak of $64bn. In contrast, asset managers have turned bearish on the Canadian dollar, British pound, and Swiss franc.
