Dollar Flat as Short-Squeeze Trade Nearing End, Experts Say

Dollar Flat as Short-Squeeze Trade Nearing End, Experts Say – The dollar was flat against a basket of major currencies Monday, but experts appear to be pricing in a bumpy road ahead for the greenback as the short-squeeze trade fizzes out and the Federal Reserve continues to dispel talk of a sooner-than-expected rate hike.  

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.01% to 92.16.

“At this stage, the dollar has lost all its positioning ‘advantage,’ having a neutral speculative positioning, which suggests we should no longer see dollar rallies against most G10 currencies exacerbated by the unwinding of USD shorts,” ING said in a note.

The value of the net short dollar positions dropped to $6.103 billion in the week ended April 6, from $8.22 billion the previous week, according to according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The USD net shorts are now worth only 2% of open interest (a drastic move from the peak at 19% on 19 January), ING added.

But dollar bulls could see further pressure from a fall in Treasury yields, which trade inversely to prices, as investors appear to back the Fed’s manta that inflation pressures will prove transitory.

“Although inflation readings are likely to be elevated during the next few months –peaking in April at 2.3% –it is likely to be transitory, and below 2.0% on a sustainable basis until 2023,” Goldman Sachs (NYSE:GS) said in a note. 

Federal Reserve Chairman Jerome Powell said on Sunday said that it is “highly unlikely” the Fed would raise rates this year. “I’m in a position to guarantee that the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.”

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