US Dollar Bullish Bets Fall Sharply Ahead of Fed Decision

US dollar bullish bets fell sharply from $41.2 billion to $30.9 against the major currencies in the week ahead of Federal Reserve’s interest rate decision, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to December 15. The US central bank raised interest rates by 0.25 percentage points for the first time in nine years after two-day policy meeting on December 16. At the same time Federal Reserve Chair Janet Yellen said on Wednesday that the path of interest rate hikes next year would be gradual. The statement about gradual rise in interest rates was anticipated as policy makers had communicated about the gradual path to tightening several times before the meeting, and investors adjusted their positions appropriately to the expected dovish statement. As is evident from the Sentiment table, the sentiment deteriorated for Canadian dollar, and the Swiss franc is now held net long against the US dollar after the Swiss central bank refrained from cutting the interest rate at its policy meeting on December 10.

The euro sentiment improved for the second week with net short bets in euro decreasing at a pace twice as fast as in the previous week. The net short bets in euro narrowed by $1.6bn to $21.8bn. Euro’s share jumped up to about 70% of long US dollar position as net short bets in all major currencies fell considerably except for the Canadian dollar. The euro net short position fell as investors covered short contracts by 21453 and reduced the long bets by 9083 contracts. The improvement in bearish Japanese yen sentiment continued as the weekly pace of reduction of net short bets increased six-fold, with net short position in yen narrowing by $4.1bn to $2.7bn. Investors cut the gross shorts by 30569 contracts while they increased the gross longs by 10901. The sentiment continued to improve also for the British Pound with the net short position narrowing by $0.6bn to $1.6bn. Investors cut both the gross shorts and the gross longs.

The sentiment for Canadian dollar deteriorated considerably with the net short position widening by $0.7bn to $3.7bn. The Canadian dollar is now the second largest held net short after euro. Investors increased gross shorts and cut gross longs. The bearish sentiment toward the Australian dollar continued to improve with net short bets narrowing by $1.7bn to $0.7bn. Investors cut the gross shorts and increased gross longs. The sentiment towards the Swiss franc reversed as a weekly net bullish bet of $3.4bn converted the $3.2bn net short position at the start of the week into a $246 million net long position in Swiss franc. Investors increased the gross longs and cut the gross shorts.