US dollar bullish bets fall to two year low

Investors cut the US dollar bullish bets in the previous week marked by dovish comments of Federal Reserve Chair Yellen to $2.1 billion from $4.6 billion against the major currencies, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to April 5. Yellen said the Federal Reserve should be cautious about monetary tightening, stressing the need to see whether the recent increase in core inflation rates would endure. Market participants interpreted her words as a signal Federal Reserve will not raise interest rates at its April meeting, which lowered further the attractiveness of the dollar. Investors cut the bullish dollar bets with net longs falling to two year low. The US March jobs report provided much the same picture of the US labor market: the 215000 growth in nonfarm jobs was solid, and average hourly earnings rose in March 0.3%, higher than expected. But the gain in average hourly earnings is small, and the unemployment rate rose to 5% from 4.9% as the number of job seekers rose. The report of healthy labor market followed an earlier inflation report which showed the core personal consumption expenditure index remained unchanged at 1.7% in March together with personal spending in February while personal income growth declined to 0.2% from 0.5% in January. The data do not indicate a change in inflation to warrant an interest rate hike in Federal Reserve April policy meeting which would increase the relative attractiveness of US dollar. This led to weaker dollar and fall in dollar bullish bets. As is evident from the Sentiment table, sentiment improved for all major currencies except for the British Pound. And the euro and the British Pound are now the only major currencies held net short against the US dollar.

The bearish euro sentiment continued to moderate with the net short position in euro narrowing at a pace seven times faster than in the prior week, falling by $1.4bn to $7.6bn. The euro net short bets fell as investors increased the gross longs and covered shorts by 4288 and 6036 contracts respectively. The bullish Japanese yen sentiment strengthened also as high haven demand for yen endured despite lowered business outlook evidenced by declining Tankan quarterly indexes based on a survey of major manufacturers. The net long position in Japanese yen rose $0.7bn to $6.8bn. Investors increased the gross long positions by 13260 contracts and built the gross shorts by 7574. The British Pound sentiment continued to deteriorate at an accelerated pace: the net short position widened by $0.5bn to $4.1bn. Investors increased both the gross shorts and longs.

The sentiment turned neutral for the Canadian dollar with the $0.4bn build in long position during the week turning the net position to $7 million net long. Investors covered shorts and built the gross longs. The bullish sentiment toward the Australian dollar continued to strengthen with the net long position rising $0.2bn to $2.0bn. Investors increased the gross longs and reduced the shorts. Sentiment toward the Swiss franc improved marginally. The net long position widened by $138 million to $0.7 billion. Investors cut both the gross longs and shorts.