Bearish bets on US dollar fall

Bearish bets against the US dollar fell for the first time in four weeks: the dollar net short position narrowed to $6.19 billion from $6.46 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 10. Mixed economic reports during the week indicated nonfarm payrolls rose less than expected 160000 in April, a decline from 208000 jobs created in March. While the increase in payrolls was less than expected it still was above the 100000 level that the Federal Reserve estimates is necessary to keep the unemployment rate from rising. The somewhat disappointing jobs report was accompanied by positive statistics on wages: the growth of average hourly earnings in April was 0.3% on month, accelerating to 2.5% year on year from 2.3% in March. Rising wages together with higher unit labor cost index, which rose 4.1% in the first quarter from 2.7% in the previous period, point to increase in expected inflation. ISM Non-Manufacturing PMI rose to 55.7 from 54.5 in March, new orders expanded at a faster pace and prices increased for the first time in three months, reflecting optimism over business and growth. Stronger services sector together with rising auto sales and construction spending, which grew 0.3% on month in March, point to improving outlook for second quarter growth. This resulted in reduced bets against the US dollar. As is evident from the Sentiment table, sentiment improved for all major currencies except for the Australian dollar, Japanese yen and Swiss franc. British Pound and the euro remain the only two major currencies held net short against the US dollar.

The bearish euro sentiment continued to moderate with the net short position in euro narrowing at one tenth of the previous week’s pace, declining by $0.2bn to $3.1bn. The euro net short position is still marginally smaller than the net short bet in British Pound which now stands at $3.15 billion after narrowing by $0.5bn. The net short position in euro fell as investors reduced gross longs by 11757 contracts and cut shorts by 13234 contracts respectively. The net short position in British Pound narrowed as both the gross longs and gross shorts were cut. The bullish bets on Japanese yen declined for the third week narrowing at more than double of last week’s pace: the net long position in Japanese yen fell $0.4bn to $6.7bn. Investors increased the gross long positions by 3270 contracts and built the gross shorts by 5744.

The sentiment continued to improve for the Canadian dollar with the net longs rising at roughly the previous week’s pace: the net longs rose by $516 million to $2.0 billion. Investors built the gross longs and covered shorts. The deterioration of bullish sentiment toward the Australian dollar intensified as investors reduced the gross longs and cut the gross shorts in the week after the Reserve Bank of Australia cut the rates 0.25 percentage points to 1.75%. The bullish sentiment toward the Swiss franc was essentially unchanged: the net long position declined by $8 million to $886 million. Investors built both the gross longs and the gross shorts.