monetaris politika dollar 574426

The dollar star is in sacrifice

After an 18-month rise that pushed the dollar to a 20-year high against major currencies last September, the greenback has weakened sharply in the past month. The main reason for this is that analysts do not expect the Federal Reserve to raise interest rates above the 5.25 percent level, after the financial institutions themselves cut back their lending after the bank failures in March, writes the Financial Times.

Hedge funds and some analysts believe that the euro zone, where economic growth is improving, and the United Kingdom, where further interest rate hikes are expected, are both putting downward pressure on the dollar.

Speculative traders have roughly doubled their short positions in the dollar since mid-March, according to Refinitiv calculations based on CFTC data, indicating that hedge funds are betting the dollar will weaken further. According to the latest data for the week ending April 10, speculators increased their short positions to $10.73 billion.

Deutsche Ruskin highlighted a rosier European economic picture and speculation that new Bank of Japan governor Kazuo Ueda may ease ultra-loose monetary policy amid upward pressure on interest rates, the main driver of currency movements.

In the UK, markets are almost fully pricing in a half-point rate hike by the Bank of England for September. This makes the pound and British assets more attractive against the dollar.

Conversely, following a widely expected quarter-point rate hike at the May meeting, markets expect the Fed to begin cutting interest rates soon if rising expectations of a US recession materialize.

However, the funds’ bets on a further weakening of the dollar may fail if investors suddenly turn to safer assets in the event of a crisis.

Cover image: Getty Images.