Fed hawkish comments fail to impress investors

US dollar long bets fell to $6.5 billion from $7.1 billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to September 20. Economic data during the media blackout week ahead of the Federal Reserve policy meeting were weak. Import and export prices fell in August after rising in previous month, retail sales fell 0.3% on month in August. Industrial and manufacturing production also fell. Consumer sentiment, as reported by Michigan University, held steady in September. Housing starts and building permits fell in August. On the positive side headline inflation rose to 1.1% on year in August from 0.8% in July. Against this backdrop and divided comments by policy makers lacking unified support for a rate hike investors reduced bullish bets on dollar ahead of Fed’s interest rate decision. As is evident from the Sentiment table, sentiment improved for all currencies except for Australian dollar, euro and Canadian dollar. And the euro and British Pound are still the two major currencies held net short against the US dollar.

Investors turned a little more bearish toward euro. The net short position widened by $0.4bn to $11.8 bn. Investors increased both the gross longs and shorts by 3915 and 7465 contracts respectively. The British Pound sentiment improved significantly as initial fears about the negative impact of Brexit appear exaggerated in light of recent positive data. Pound net shorts fell by $2.0 billion to $4.7 billion. The net short position in British Pound narrowed as investors increased both the gross longs and the shorts by 28836 and 4701 contracts. The bullish Japanese yen sentiment held firm with the net long position in Japanese yen rising by $0.29bn to $7.2bn. Investors cut both the gross longs and shorts by 1023 and 2962 contracts respectively.

The Canadian dollar sentiment was essentially unchanged with the net longs falling by $59 million to $1.23 billion. Investors built both the gross longs and gross shorts. The bullish sentiment deteriorated substantially for the Australian dollar with net longs declining by $2.2bn to $0.5bn. Investors cut the gross longs and built the gross shorts. The sentiment improved significantly for the Swiss franc with the net longs rising by $0.9bn to $1.0bn. Investors built the gross longs and covered shorts.