A big bet against the dollar becomes a painful deal for investors

Wedding against the dollar was the most important trade this year in the foreign exchange market, which has a volume of $ 9.6 trillion a day, but this trend begins to lose momentum. Despite the continued closing of the US government, the dollar rose to its highest levels in about two months, at a time when traders in Asia and Europe indicated that hedge funds increased their bets through options contracts, over the continued story of the US currency against most major currencies until the end of the year. Also read: The dollar approaches its highest level in two months amid global financial tension. External developments mainly contributed to this transformation, as both the euro and the Japanese yen decreased this month. Meanwhile, Federal Reserve officials have contributed to a request for delay in the further reduction of interest rates, contributing to improving the attractiveness of the dollar. The longer this increase continues, the greater the losses for those who bet on a further decline in the US currency, including Goldman Sachs, JP Morgan and Morgan Stanley. The rise of the dollar threatens emerging market shares. If this upward trend for the dollar continues, it could have broad consequences for the global economy, including the task of other central banks to facilitate monetary policy, increase the cost of basic commodities and increase dollar-denominated debt tax. This rapid recovery can undermine some of the most popular bets during the year, especially optimism in emerging market shares and bonds in the fourth quarter, in addition to pressure on the shares of US export companies. Among those who changed their outlook on the US currency was Ed Al-Husseini, Portfolio Manager at Columbia Threadneedle, who bet on the dollar’s decline at the end of 2024, when it was still on an upward trajectory known after the US election as the Trump trade. But he has reduced this bet in recent weeks by reducing its exposure to emerging markets, after noting that the markets have begun to base their expectations excessively on the reduction of interest rates, despite the strength of the US economy. Al-Husseini said: “We have become more optimistic to the dollar. The markets price in a series of sharp cuts, but it will be difficult to achieve it without causing great pain in the labor market.” The dollar improves after its biggest decline in decades. The Bloomberg Dollar Index has risen by about 2% since mid -year, after scoring its biggest decline in decades in the first half of 2025. In the most recent week, it achieved 1.2%profits, the best weekly achievement since November. The dollar began 2025 on a lower note, after President Donald Trump prevented him from setting up comprehensive rates immediately after accepting office. The drop of the dollar has come for reasons, including the view that inflation will remain control, enough to make room for the Federal Reserve to lower the interest rates. But in April, the decline in Trump who announced the imposition of comprehensive rates, which increased the fear that foreign investors would withdraw from the US market in the light of the increase in the trade war. It was also speculated that Trump preferred a weaker dollar to increase exports, in addition to its continued pressure on the Federal Reserve to facilitate monetary policy, which fueled the wave of pessimism towards the US currency. Also read: Morgan Stanley expects a significant fall in the dollar as economic growth delays. However, unlike this fear, international investors have not shown a noticeable reluctance for US assets. Although there are indications that they use derivatives to hedge against dollar fluctuations, the attractiveness of US equities, especially the shares of major technology companies, remained strong. Treasury Binding Auctions also maintained most of the external demand. Betting against the dollar is shrinking, as optimism returns the latest data from the CFTC shows that hedge funds, asset managers and commodity advisors maintained short positions in the dollar by the end of September. Although these bets have decreased from their peak in the middle of the year, there is the possibility that it will cause losses if the dollar continues to rise. According to Mukund Daga, head of global currency options at Barclays, hedge funds strengthen their bullish betting on the dollar through option contracts until the end of the year, also against most currencies. There are indications that options traders pay higher amounts to hedge against the rise of the dollar compared to its decline. The indication of the difference between the demand for bullish bets and clumsy bets has shown that traders have been best over the US currency since April. Meanwhile, a survey conducted by Bank of America and published on Friday showed that the confidence of the world investors in the short -sale of the US dollar has dropped to the lowest levels since the beginning of April. “Investors are still concerned about the independence of the Federal Reserve and its potential impact on the dollar,” said two streets at Bank of America, including Adarsh ​​Sinha and Michalis Roussakis. “But they are currently focused on other issues.” Deposit Trust & Clearing Corp -data also shows that the demand for financial instruments designed to take advantage of the rise in the dollar exceeded the demand for those on the fall on the fall on the fall. The road of the dollar depends on the Fed’s next steps. The road that will follow the dollar in the next phase remains open to all possibilities, while the following steps of the Federal Reserve is expected to play the most important role in determining the direction. Traders are currently estimating that the board will make two cuts of a quarter percentage point before the end of the year, with further cuts next year. However, recent statements, including the minutes of the September meeting and the interventions of a number of Fed members, indicate that this road has not yet been decided. Despite signs of a slowdown in the labor market, inflation remains a difficult problem. “Markets are now preparing in a complete cycle of rate cuts by the Fed, which was not the case before,” explains Mona Mahajan, head of investment strategy at Edward Jones. “It explains the recent weakness of the dollar, but it is normal for it to see some correction later to return to average levels.” Bloomberg’s opinion: “The increasing momentum of the US currency is increasing pressure on traders who bet on a drop in the dollar. There is still a large amount of money clinging to short positions in the hope of a return to the sales story in America that prevailed at the beginning of 2025. Garfield Reynolds, head of the Asia team at Mliv the US government, is hampered to read the direction of the dollar. The US government’s closure poses a major challenge for currency market analysts, after it led to the postponement of the publication of important employment data. However, the Bureau of Labor Statistics has reportedly called for its staff to prepare a major report on inflation. Any additional signs of weakness in the labor market can return the momentum of the sale of betting on the dollar, especially as a number of the largest banks on Wall Street still expect a further decline in the currency in the coming months. Also read: The weakness of the dollar is a recurring feature of the US government’s closures. One of the factors that can increase the pressure on the dollar is what is known as the ‘Debasement Trade’, as growing concerns about financial conditions in large economies some investors are looking for alternative secure ports such as ‘Bitcoin’ and precious metals instead of major currencies. Much of the dollar fall earlier this year was based on the expectation that improving economic outlook outside the United States would attract investors to those markets, but political developments in France and Japan have expelled part of this optimism. The weakness of the yen and the euro gives the dollar an extra advantage. Exchange rates reflect the relative values ​​between currencies, and trust in the Japanese yen have decreased as the possibility of Sanaae Takaichi, the new leader of the ruling party, becomes prime minister. Its policy is seen as inflation and relying on debt -funded fiscal stimulus, which has pushed the yen to the lowest levels since February. In France, the government of President Emmanuel Macron is still facing a deteriorating political crisis, which has put an extra burden on the euro, which has dropped to the lowest level since August. Carol Kong, a currency analyst at the Commonwealth Bank of Australia, believes that developments in the political scene in France and the expectations of accepting fiscal and monetary policies are more … A move in Japan can give the dollar extra momentum against the yen and the euro during the upcoming period. “At the end of the day, as we say in one of our old words, the dollar is the cleanest shirt in the wax basket,” said Andrew Brenner, Vice President of Natalliance Securities in New York. “So it is not expected to see a significant decline as long as both the yen and the euro are under pressure.”