Investors may return to a safer dollar
Sept 11 (Reuters) -Investors may return to a safer dollar that many traders have sold at a time when a collapse for China's stock market and a plunge in oil prices suggest there is cause for caution.
Assets few hold are safer and the dollar, which many have sold, is the world reserve currency, which is likely to rise should any risk-averse situation arise.
Given the growing potential for short-squeeze, it could rise further and faster than usual, and the fact that the dollar has barely moved during the period it has been sold is a cause for concern.
Traders who were betting $35 billion on dollar rising in April have sold short of dollars versus euro, pound and yen, and are also betting it drops versus Mexico's peso. The dollar is expected to drop versus eight of the nine currencies in Reuters' FX poll, including China's yuan, on which traders recently upped their bullish bets.
The trade-weighted dollar ended July at 127.86 compared to 128.28 at the end of April. Traders have sold many dollars but it has barely moved and the dollar index has rallied this month.
Expectations for U.S. easing that have fuelled selling are extreme, with the cycle of cuts expected to be almost complete by this time next year. While this seems a stretch of the imagination, the U.S. interest rate will still match or be better than those influencing other major currencies when the easing cycle ends, which logically makes it the better investment.
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Trade weighted USD https://tmsnrt.rs/3MxbWqI
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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