IFC Markets - Analytics

    IFC Markets

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    Investors anticipated dovish Federal Reserve policy statement

    Investors cut US dollar net long bets to $6.58 billion from $6.8 billion against the major currencies ahead of Federal Reserve March 15-16 policy meeting , according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to March 15. There were no expectations that Federal Reserve might increase rates when the jobs report indicated the average hourly earnings fell in February. The strength of labor market has been the main argument used by advocates of tightening of monetary policy, and low unemployment rate and initial jobless claims pointed to continued strength in labor market. However, falling average hourly earnings point to weak inflationary expectations, rendering a rate hike not likely with inflation staying low. The major economic report of the past week showed retail sales fell in February 0.1% compared with January figure, with core retail sales, which excludes auto and falling gas sales, declining at the same rate. At the same time import and export prices, as well as producer prices declined in February, further indicating weak demand and lack of inflationary pressures both in foreign and domestic markets. Investors reduced the dollar bullish bets positioning ahead of the Fed’s policy decision. As is evident from the Sentiment table, sentiment improved for all major currencies except for the Japanese yen, Australian dollar and euro. And Swiss franc joined the Japanese yen and Australian dollar as the third currency held net long against the US dollar.

    The bearish euro sentiment strengthened after the European Central Bank March 10 decision. The ECB cut the deposit interest rate to minus 0.4% and increased monthly bond purchases to 80 billion euros from 60 billion starting in April. The net short position in euro increased by $0.8bn to $10.7bn. The euro net short bets rose as investors cut both the gross longs and shorts by 13812 and 8164 contracts respectively. The bullish Japanese yen sentiment moderated as the Bank of Japan downgraded its assessment of economic recovery while it didn’t cut the deposit rate further from minus 0.1% after a surprise decision to adopt negative rate policy in January. The net long position in Japanese yen fell $2.1bn to $7.1bn. Investors reduced the gross long positions by 14441 contracts and increased shorts by 4403. The British Pound sentiment improved substantially ahead of Bank of England meeting with the net short position narrowing by $3.1bn to $1.2bn. Investors built the gross longs and covered shorts.

    The sentiment improved for the Canadian dollar with the net short position narrowing by $0.6bn to $1.2bn after Bank of Canada kept interest rate unchanged at 0.5 %. Investors cut the gross shorts and increased the gross longs. The bullish sentiment toward the Australian dollar moderated with the net long position falling $1.2bn to $0.9bn. Investors cut both the gross longs and shorts. Sentiment toward the Swiss franc turned bullish. The weekly build of $683 million in bullish Swiss franc bets turned the $16 million net short position into a net long of $ 667 million. Investors covered the shorts and increased the gross longs.

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