(Bloomberg) — The share of investors who are convinced the dollar will weaken has almost tripled over the past month as the market braces for interest-rate cuts from the U.S Federal Reserve, according to a Bank of America survey.
About 23 per cent of respondents in the bank’s monthly sentiment poll said their highest conviction trade was to short the dollar, the biggest share so far this year, and up from just eight per cent in July.
The dollar has outperformed most Group-of-10 currencies this year, but its rally has fizzled in the past month as data showed the US economy was losing steam, prompting traders to bet on aggressive interest-rate cuts. While the moves have since pared, swaps still price 100 basis points of easing this year, compared to about 65 basis points just over a week ago.
“The big upside risk to the dollar that investors have stopped worrying about is inflation stickiness,” said Ralf Preusser, a rates strategist at BofA. “This should allow the dollar to start correcting from historically rich levels.”
The BofA survey — conducted with 45 global fixed income managers from Aug. 2 to 7 — showed 39 per cent of respondents were long rates, from 31 per cent in July and 49 per cent in May. It also revealed 23 per cent of respondents consider the “long-risk” trade as the most crowded, from 61 per cent last month.
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