Dollar Faces Widespread Selling Pressure Amid Hedge Fund Adjustments

• The U.S. dollar is experiencing significant selling pressure, driven by hedge funds and corporations adjusting their positions, according to a report from Bank of America.
• This has particularly benefited major currencies such as the euro (EUR), Japanese yen (JPY), and British pound (GBP), which have gained as a result.
• High-beta G10 currencies and emerging market (EM) FX have also seen inflows, reflecting broader market trends.
• Despite being one of the weaker G10 currencies in August, GBP has seen strong support from hedge funds, indicating potential room for further appreciation.
• Hedge funds have shown interest in INR, KRW, and ZAR, while reducing positions in HUF. Real money flows have favored BRL, IDR, SGD, PLN, and CZK, with CNH and ILS being sold.
• The overall positioning in EM FX remains slightly short, with particular vulnerabilities in Asia following recent market volatility.

New York, August 20 (FFN) – The U.S. dollar is facing notable selling pressure across various currency pairs, as hedge funds and corporations realign their positions. According to Bank of America, this trend has led to gains for the euro (EUR), Japanese yen (JPY), and British pound (GBP), currencies that have capitalized on the dollar’s recent weakness.

The report highlights that hedge funds are currently vulnerable with their long positions in the U.S. dollar. Despite the GBP being one of the weaker G10 currencies in August, it continues to attract strong support, particularly from hedge funds, indicating there may be further room for gains in sterling.

Bank of America also noted a significant shift in sentiment towards emerging market (EM) FX last week, with positive flows for the first time since recent market turbulence. Hedge funds have been active buyers of Indian rupee (INR), South Korean won (KRW), and South African rand (ZAR), while offloading Hungarian forint (HUF). In contrast, real money investors have shown interest in Brazilian real (BRL), Indonesian rupiah (IDR), Singapore dollar (SGD), Polish zloty (PLN), and Czech koruna (CZK), while selling Chinese yuan (CNH) and Israeli shekel (ILS).

Overall, the positioning in EM FX remains slightly short, with a particularly strong short bias in Asia following recent market volatility. Bank of America’s analysts warned that the hedge fund short position in EM FX appears stretched, suggesting potential risks for those holding these positions.

This selling pressure on the dollar and the adjustments in hedge fund positions reflect broader market concerns, including ongoing geopolitical tensions and uncertainties about global economic recovery. As these dynamics play out, investors are likely to continue monitoring currency movements closely.

Currency Movements and Hedge Fund Activity (August 2024)