Asset Managers Turn Bearish On US Dollar, Bets Climb To Record High

Key Takeaways:

• Bearish bets on the US dollar reached a record high.
• Slowing inflation might hasten the end of the Fed’s policy tightening.

NEW DELHI (CoinChapter.com) — Asset managers have increased their bearish bets against the US dollar in 2023.

According to a Bloomberg report, institutional investors, such as pension funds and mutual funds, have increased their short position on the dollar by 18% to reach 568,721 contracts in the week beginning July 18.

Meanwhile, inflation in June slowed down more than economists’ speculations. The report noted that while the Federal Reserve might increase its key interest rate by 25 basis points. However, overnight-indexed swaps suggest the US Central Bank might start decreasing its rates in Q1 2024.

Dollar net shorts against the euro and the pound saw the most bearish bets among the eight major currencies.

Furthermore, some economists believe that the economy might have a softer-than-expected landing from the nearly 20-month-long bear market. Traders took cues from the S&P 500’s nine-month rally that has nearly erased the index’s losses in the bear market.

Despite Federal policymakers remaining worried about inflation’s deceleration rate, investors continued to push stock prices upwards. SPX’s price remained a mere $2.6 away from recovering its losses from the bear market.

Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank Ltd., said in an interview with Bloomberg that investment firms were confident that inflation in the US would slow down “quite significantly over the coming quarters in the US.”

US Dollar Impact On Cryptocurrencies

Crypto markets have traditionally had an inverse relationship with the US dollar.

Historically, whenever the US dollar’s strength has declined, Bitcoin’s (BTC) price has gone up. Since BTC often accounts for nearly half of the overall crypto market cap, safe to say the relationship holds true for the wider market.

Therefore, if the US dollar’s strength declines, crypto markets might rally higher, keeping in line with the historic trends.