Hedge funds are rapidly unwinding one of 2026’s most crowded macro trades as expectations for Federal Reserve rate cuts give way to growing bets on further policy tightening, according to a report by the WSJ.
The reversal has fuelled a sharp rally in the US dollar, sending the Dollar Index to a 13-month high and triggering steep declines across precious metals. Gold fell more than 3% on Wednesday to close over 25% below its 2026 peak, while silver dropped 6.4%, extending its decline to around 50% from January highs.
For much of the year, macro investors had positioned for a weaker dollar, betting the Fed would ease monetary policy more aggressively than other major central banks. The so-called “dollar debasement” trade helped drive strong gains in gold and silver as investors sought protection against falling real rates and a weakening currency.
However, shifting interest-rate expectations have forced a rapid repositioning across markets. Investors are increasingly pricing in the possibility of further Fed rate hikes, supporting the dollar while undermining popular inflation and currency-hedging trades.
The move comes amid a broader rotation away from some of the market’s most crowded positions. Technology and AI-related stocks continued to come under pressure, while investors shifted capital into more cyclical areas of the market, including homebuilders, regional banks and travel stocks.
The speed of the reversal highlights how quickly macro sentiment has shifted, with hedge funds now reassessing positioning that had dominated markets for much of the first half of the year.
