Dollar bullish bets rise on positive data

US dollar long bets rose to $10.2 billion from $9.7 billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to October 4. Comments by Federal Reserve policy makers about the need to tighten policy now before inflation rises turning into a serious issue in the future and positive recent data contributed to strengthened bullish sentiment for dollar. The Institute for Supply Management reported US industrial and services sectors expanded in September: the Manufacturing Index rose to 51.5% last month after falling to 49.4 in August, and the Services Index jumped to 57.1 from 51.4. A reading of more than 50 indicates growth in activity. Richmond Fed President Jeffrey Lacker, a known hawk who isn’t a voting member of the Fed’s policy-setting panel this year, said the Federal Reserve should adopt a strategy of raising interest rates before inflation moves higher. Investors boosted dollar bullish bets on improved economic data in anticipation of a rate hike this year as signaled by the Federal Reserve which stated the continued improvement in US economy as a condition for a rate hike soon. As is evident from the Sentiment table, sentiment deteriorated for all currencies except for Australian dollar and Swiss franc. And the Australian dollar and Japanese yen are the only two major currencies held net long against the US dollar.

Investors’ view of the euro turned more bearish again despite media reports the European Central Bank may start reducing monthly 80 billion euros ($89.7 billion) purchases before the program’s scheduled March 2017 end. The reports were officially refuted later with ECB chief economist Peter Praet saying rates will remain low until inflation gets up to the ECB's target, and statements that the central bank's decision-making body has not discussed reducing the pace of its monthly bond buying. The net short euro position widened by $0.8bn to $11.49bn. Investors increased both the gross longs and shorts by 45142 and 11171 contracts respectively. The British Pound sentiment deteriorated on Brexit concerns for UK economy after Prime Minister Theresa May signaled her government will focus on immigration and UK sovereignty in Brexit negotiations, with banks based in Britain getting no special treatment. Pound net shorts rose by $0.6 billion to $7.7 billion. The net short position in British Pound widened as investors built both the gross longs and shorts by 8583 and 18441 contracts respectively The bullish Japanese yen sentiment moderated with the net long position in Japanese yen falling by $0.2bn to $8.3bn. Investors increased both the gross longs and shorts by 4554 and 4750 contracts respectively.

The Canadian dollar sentiment deteriorated marginally with the net shorts widening by $187 million to $1.0bn against the dollar. Investors cut the gross longs and increased shorts. The bullish sentiment improved significantly for the Australian dollar with net longs rising at previous week’s pace of $0.6bn to $1.8bn. Investors increased both the gross longs and gross shorts. The sentiment improved for the Swiss franc with the net shorts narrowing by $0.39bn to $0.37bn. Investors built both the gross longs and shorts.