Long-term investors bet on the USD growth and speculators bet on its decline
Long-term investors have reduced long positions in the US dollar, but refrained from going into net "shorts", says the head of foreign exchange sales Mizuho Neil Jones. But short-term speculators noticeably increased the bets dollar decline in May, says the head of UBS fx sales, Adrian Bohler.
Thus, long-term and short-term traders were on opposite sides, and market participants are wondering whether the recent decline in the U.S. currency is a temporary phenomenon or an optimistic bet on further recovery of the world economy.
The global economy may have be in the process of recovery but investor optimism is fading. The recent unrest in the USA and worsening relations between the Western powers and China overshadow the forecasts. In addition, the growth of new Covid-19 cases in some US states creates fears of a second wave. In the coming months demand may well increase for such protective currencies as USD and the yen, predicts the head of Rabobank FX strategy Jane Foley.
The growth of risky assets, which caused the decline of the dollar, "is built on the sand" and is not based on any long-term expectations of global economic recovery, according to experts of Carmignac Gestion (US$57 billion under management).
Investor uncertainty is especially noticeable, if you look at the dynamics of the Bloomberg Dollar Index, which has been growing and declining this week. Despite the recent decline in the U.S. currency, investors are still waiting for its further growth, according to the Commodity Futures Trading Commission (CFTC).
However, if the global economy continues to recover, the positioning of long-term players will not prevent further USD decline, according to UBS experts.