US Dollar net longs hit 2-month high; pound shorts at record high -CFTC

New York (Oct 8)  Speculators lifted favorable dollar bets for a second straight week, with net longs hitting their highest in roughly two months, as investors priced in an interest rate hike by the Federal Reserve after the release of upbeat U.S. data this week.

The value of the dollar's net long position rose to $10.52 billion in the week ended Oct. 4 from $9.71 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. This was the highest since the week of August 9.

The dollar has garnered support from recent U.S. reports that showed strength in manufacturing and a rise in consumer confidence. Friday's U.S. non-farm payrolls report for September was slightly weaker-than-expected, but it was viewed as strong enough to keep the Fed on track to raise rates in December. So far this year, the dollar index was still down 2.1 percent on Friday after gains of more than 9 percent in 2015.

"The combination of strong underlying inflationary pressures and waning oil price base effects means the Fed could find itself significantly behind the curve at the turn of the year - so much so that there may be upside risks to the current dot-plot projection of three hikes by end-2017," said Viraj Patel, FX strategist at ING Wholesale Banking in London.

Patel said the prospect for more rate hikes next year should keep the dollar supported against low-yielding G10 currencies in the near term.

Sterling net short positions hit another record high of 97,572 contracts, data showed.

Friday's flash crash which pushed sterling to another 31-year low was yet another reminder of the British currency's vulnerability. The pound plunged on growing worries Britain would opt for a "hard" exit from the European Union. Sterling so far this year has lost nearly 19 percent of its value.

"It is important to note that the big picture has been sterling negative for many months when viewed from the (flows) perspective of global money managers," said Samarjit Shankar, global markets strategist, at BNY Mellon in Boston.

"We have been highlighting the steady outflows from the beleaguered currency over the past year."

The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.

Source: Reuters