Hedge funds that have racked up the largest bets against the dollar in almost three years may be running headlong into a short squeeze.
With markets on edge over resurgent coronavirus cases and a contentious U.S. presidential election, predictions of the currency's demise as the world's No. 1 haven appear premature. Investors went into the greenback's strongest rally since April last week expecting losses against all but one of the currencies of the Group of 10 industrialized nations, the first time that's happened since 2013, according to ING Groep.
Few of those bets have been covered, according to the latest data. Speculative positions in futures linked to the ICE U.S. Dollar index turned the most negative since November 2017, according to Commodity Futures Trading Commission data through Sept. 22. That suggests speculators might only be beginning to enter a world of pain.
"Dollar shorts were at multiyear highs, you surely cannot assume they have all been trimmed last week," ING currency strategist Francesco Pesole said by email. "There is definitely more room for the dollar to benefit from position squaring."