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Investors flip to bullish dollar bets

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Hedge funds, asset managers, and other speculators moved into bullish dollar positions in the week ending 22 October, holding around $9.2bn in long dollar bets, according to data from the Commodity Futures Trading Commission compiled by Bloomberg.

This marks the first net long dollar position since August and represents a major shift of $10.6bn from the previous week, when traders were net short on the greenback.

In October, derivatives traders have scaled back on bearish dollar outlooks due to stronger-than-expected US economic data and rising demand for haven assets as the US election draws close. A series of positive economic reports has led to a recalibration of previously dovish Federal Reserve expectations, contributing to this shift.

A Bloomberg dollar index has surged 3.2% so far this month, positioning the dollar for its best monthly performance in two years. At the same time, demand for hedges against potential dollar spikes has increased. The cost of calls versus puts on a broad dollar basket has risen significantly over the past month, nearing levels not seen since July.

Currencies with significant trade ties to the US — such as the euro, yen, Chinese yuan, Canadian dollar, and Mexican peso — are trading with notable risk discounts.

Leveraged funds further increased their short bets on the Mexican peso, with hedge funds adding 2,241 contracts to reach a total of 9,044 net short contracts, as reported by the CFTC.

The CFTC is set to release another snapshot of trader positioning on 1 November, just a week before the US election, which will offer insight into market sentiment heading into the critical period.

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