USD bulls increase risk of sharp pullback

Some11 The percentage of participants in the September Bank of America Global Fund Manager Survey called long the dollar the most “crowded trade,” and the greenback held that position in the survey for the third straight month.

Investors may have tasted when 2014 U.S. dollar index fell nearly 3% in two weeks, From mid-July, as some investors bet that U.S. inflation could slow enough to give the Fed room to move off an aggressive rate hike path. Although the U.S. inflation report for August dashed those hopes and sent the dollar higher, the dollar’s crowded trading The danger will only increase. “There is no doubt that when you have a crowded trade, your investors are all looking for the same thing, and when perceptions change, The response has been overwhelming,” said Eric Leve, chief investment officer at wealth and investment management firm Bailard. ” we can easily see a %- % the dollar moves in the opposite direction against the euro or the yen,” he said. exist400 and200, the US dollar index has risen more than % During the one-year period, the index followed two months of declines of 6.7% and 7.7%, respectively, after the dollar peaked. Reversal Catalyst While a crowded position would exacerbate any potential reversal in the dollar, But to cause such a reversal, investors would need to make major fundamental changes. Say. Declining U.S. interest rate volatility, normalizing energy prices in Europe and China abandoning its zero-pandemic policy are three prerequisites for the U.S. dollar to enter a structural bear market, BNP Paribas’s Xie said. ” When all three are ticked off, it gives us more runway to see the dollar enter a bear market rket , but I don’t think that’s going to happen anytime soon,” he said. While U.S. interest rates are higher than many other economies, central banks in nearly every major economy, including the European Central Bank and the Bank of England, are stepping up their rivalry High inflation has been accompanied by higher interest rates, helping to boost the appeal of the battered currency. Any sign that U.S. inflation may be slowing could help revive expectations for a dovish Fed turn, depriving the dollar key driver.