Investors cut bearish bets against the US dollar for the second week in a row as the dollar net short position narrowed to $4.19 billion from $6.19 billion in the previous week against the major currencies, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to May 17. The single most important statistic which contributed to improved dollar sentiment after better than expected retail sales in the previous week was rising inflation: April inflation rose 0.4% month on month, the highest gain since February 2013. The headline inflation also rose, reaching 1.1% year over year compared with 0.9% in March, although the core inflation rate declined for a second month as it fell to 2.1% year-on-year from 2.2% in the previous month. Higher inflation, or personal consumption expenditures index rising toward 2.0% year on year, is one of two main indicators that Federal Reserve bases its monetary policy decisions together with unemployment rate. Rising consumer price level improves chances for a rate hike in June, which contributed to decline in bearish bets against the dollar. Higher industrial production in April which recorded 0.7% month on month rise after an 0.9% decline in March provided a second indication of improved economic performance in the second quarter, which is also supportive of a rate hike case in June if the positive inflation and labor market trends continue in May ahead of the Fed’s June meeting. As is evident from the Sentiment table, sentiment deteriorated for all major currencies. British Pound and the euro are still the only two major currencies held net short against the US dollar.
The bearish euro sentiment strengthened marginally with the net short position in euro widening by $85 million to $3.19bn. The euro net short position is still slightly lower than the net short bet in British Pound which grew to $3.47 billion after Pound bearish sentiment intensified resulting in a reversion to a widening of net short bets by $0.32bn. The net short position in euro fell as investors increased gross longs by 446 contracts and built gross shorts by 1161 contracts respectively. The net short position in British Pound widened as the gross longs were cut while the gross shorts were increased. The bullish bets on Japanese yen declined marginally for the fourth week: the net long position in Japanese yen fell $3 million to $6.75bn. Investors cut the gross long positions by 2732 contracts and covered shorts by 2604.
The sentiment deteriorated for the Canadian dollar for the first time since late January as it started to improve with recovery in oil prices: the net longs fell by $245million to $1.75 billion. Investors cut the gross longs and covered shorts. The deterioration of bullish sentiment toward the Australian dollar continued as the net long bets declined at roughly the previous week’s pace falling by $0.98bn to $1.8bn. Investors reduced the gross longs while they increased the gross shorts. The bullish sentiment toward the Swiss franc weakened significantly with the net long position falling by $357 million to $529 million. Investors cut the gross longs as they increased the gross shorts.