Dollar longs built on weak foundations may collapse
Nov 5 (Reuters) - Dollar longs built on weak foundations may collapse as the focus of traders reverts to the probability that the greenback will be undermined by the lowering of the U.S. interest rate.
There has been a headlong rush to buy dollars ahead of Tuesday's U.S. election, with traders rapidly turning from a 17 billion bet against the USD to an almost 18 billion dollar wager that it will rise.
There is a strong belief that a Trump victory will support the dollar, while the potential for a Republican clean sweep has further fuelled bullish thinking.
This is pure speculation and the speed of the change that has seen traders shift from a very bearish view on the U.S. currency to an extremely bullish position in just two months suggests the entire position has been built on weak foundations.
Should Trump win there is a good chance that profit-taking weakens the dollar, and should he lose then the greenback could head south rapidly. Whatever the result, the U.S. central bank is set to lower the U.S. interest rate towards 3.5% by the middle of next year.
If Trump wins he will doubtless urge the Federal Reserve to move faster and further in support of his aim to boost the U.S. economy.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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