(The opinions expressed here are those of the author, a columnist for Reuters.)


ORLANDO, Fla. - Hedge funds went on their heaviest dollar-buying binge this year ahead of the Federal Reserve's May 4 interest rate hike, helping to propel the greenback to a fresh 20-year peak.

U.S. futures market data show that the $6.5 billion jump in the value of funds' net long dollar position against a range of currencies in the week to May 3 was the biggest increase since November, and was led by buying against the euro and sterling.

Commodity Futures Trading Commission speculators flipped to a net short euro position for the first time since early January and grew their net short sterling position to the largest since October, 2019. Both currencies have continued to depreciate sharply.

The value of funds' long dollar futures against a range of G10 and emerging currencies stood at $18.35 billion, the highest since January. The dollar index rose around 1% over the week in question to a 20-year high just under 104.00.

The Fed raised interest rates on May 4 by 50 basis points as expected, the second move in what is likely to be the most aggressive inflation-busting tightening cycle since at least 1994. The dollar has ripped higher.

"The U.S. economy is relatively well-placed to weather tighter financial conditions, underpinning further strength in the greenback," wrote Capital Economics strategist Jonathan Petersen. "What's more, if global economic growth slows more than we expect, the dollar is likely to rise from 'safe-haven' demand."

CFTC funds are now net short euros to the tune of 6,378 contracts, a position worth $839 million. The shift was led by a big increase in fresh short positions rather than a liquidation of long positions, suggesting the move may have momentum.

The turnaround in recent weeks has been remarkable - in early March, funds held a net long euro position worth $9 billion.

Funds' net short sterling position rose to 73,813 contracts, a collective bet against the currency worth $5.8 billion. This is a more extreme position, and there aren't too many times in the past when bearishness has been stronger.

CFTC funds have been long dollars - essentially betting the currency will appreciate - every week since July 23, 2021. The peak value of that bet reached $24.4 billion in December.

It has been a winning bet, especially in the last few months. According to hedge fund industry data and index provider HFR, macro strategies were up 10.3% in the first four months of the year, easily outperforming the broader hedge fund index, which fell 1.89%.

Within the macro universe the currency strategy sub-index jumped 4.93% in April alone, the biggest rise since at least 2013.

(The opinions expressed here are those of the author, a columnist for Reuters)

(By Jamie McGeever Graphics by Jamie McGeever, Saqib Ahmed, Saikat Chatterjee, Joice Alves; Editing by Paul Simao)