Hedge funds have been positioned for a weaker dollar all year and those bets are paying off handsomely, especially against the Mexican peso, Brazilian real and sterling.
The latest Commodity Futures Trading Commission data for the week to July 11 show speculators' held their largest net long sterling position since 2007, and their biggest bullish bet on the Mexican peso and Brazilian real in three years.
To be 'long' an asset is essentially a bet that it will rise in value, while to be 'short' is effectively a bet that it will depreciate. Investors often use futures contracts to hedge positions, but the CFTC data are often a pretty good guide to hedge funds' directional view on a given asset. The peso's performance has been especially impressive - it closed on Friday at its strongest level since 2015 and is up 16% against the dollar year to date, powering toward its biggest annual gain on record.
"Signs of further improvement in the global growth-inflation mix and a U.S. soft landing sow the seeds for dollar weakness ahead," HSBC analysts wrote last week in a global outlook.
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