Recently, as the Federal Reserve has turned to "disrupt the market", investors' bets on the decline of the dollar have continued to heat up. At the same time, hedge funds have increased their bullish bets on oil for the first time since September against the backdrop of the ongoing Red Sea crisis and rising risks to global energy transportation.
Empty dollars
Traders including hedge funds and asset managers have sharply increased their bearish bets on the dollar last week, data from the U.S. Commodity Futures Trading Commission (CFTC) showed. Currently, there are more than 39,000 contracts tied to expectations of a decline in the US dollar, an increase of more than 10,000 contracts from the week before the Fed's meeting.
After that meeting, the Federal Reserve released its latest economic projections, predicting further easing of monetary policy next year, and the dollar short-term plunged rapidly, and the dollar spot index fell to a new low since July. So far this year, the dollar index has fallen more than 2%, or its worst annual performance since 2020.
It is worth mentioning that the data shows that while the number of contracts bearish on the US dollar increased this week, the total value of these contracts decreased slightly compared to last week to $5.5 billion.
On Friday, the US dollar extended its decline as the Federal Reserve's preferred core inflation index showed moderate price growth and a larger-than-expected cooling in inflation, further confirming market expectations for interest rate cuts next year.
Against this backdrop, the Swiss franc reached its highest level against the dollar since 2015, and the euro and the NOK also updated their highest levels against the dollar since August. According to the one-year risk reversal index, market expectations for a stronger dollar fell to their lowest level since June, indicating expectations for further dollar weakness next year.
More oil prices
Oil prices rebounded as risks rose globally for energy shipments, with hedge funds increasing their bullish bets on oil for the first time since September.
Hedge funds' net long positions in the West Texas Intermediate crude benchmark contract increased to 109723, a sharp increase from the previous week's "most pessimistic" level ever, according to data from ICE Futures and the U.S. Commodity Futures Trading Commission. The data showed that this increase in net long positions was mainly driven by a decrease in short positions of 32,678 contracts.
However, despite the Red Sea situation driving oil prices sharply during the week, the long-term bullish outlook for crude oil remains challenging, with the market expecting that U.S. crude production could reach a record high next year, while demand growth could slow.
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