Column: ECB rate pledge prompts hedge funds to bet on euro: McGeever

The headquarters of the European Central Bank (ECB) is pictured in Frankfurt January 21, 2015. REUTERS/Kai Pfaffenbach/File Photo

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ORLANDO, Fla., June 6 (Reuters) – The European Central Bank appears determined to start raising interest rates next month, opening the door for hedge funds to reload in euros. And that’s exactly what they do.

US futures market data shows speculators hold their biggest net long position in the euro in 12 weeks, and May marked the second most positive change in monthly fund positioning in nearly two years .

The latest report from the Commodity Futures Trading Commission shows funds increased their net long euro holdings by around $2 billion last week, accounting for two-thirds of a $3 billion decline in the position. wider long in dollars against G10 currencies.

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Indeed, the $5 billion decline in the net long position in dollars against G10 currencies over the past two weeks is entirely due to a corresponding jump of $5 billion in the net long positions in euros.

In the week to May 31, CFTC funds increased their net long position in euros to a three-month high of 52,272 contracts from 38,930 the previous week. Their bet on the appreciation of the euro is now worth $7 billion, up from $5.2 billion the previous week.

A long position in an asset or security is actually a bet that its value will increase, and a short position is the opposite.

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THE ECB IS ENVISAGING A HIKE OF 50 BPS?

The shift in ECB expectations has been remarkable. Only a month ago, CFTC funds held a small net short position in the euro, the euro fell to $1.0350 in mid-May and talks on the parity with the dollar were going well .

But eurozone inflation continues to rise – it hit a record 8.1% in May – and the debate is over whether the ECB will hike rates in July for the first time in more than a decade. a decade, but by how much. Read more

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Several ECB officials have raised the possibility of a 50 basis point move, and Deutsche Bank economists now expect one of two rate hikes in the third quarter to be a 50 basis point hike. base, more likely in September than in July.

“We wonder why the ECB has not already acted,” Societe Generale economists wrote on Friday.

The ECB is expected to pave the way for a rate hike in July on Thursday. Euro money markets are pricing in rate hikes of 100 basis points by October and 125 basis points by the end of the year, and the euro has rebounded to a one-month high close to $1.08.

Forex market participants pay heed to the ECB’s inflation-fighting rhetoric and push the bank’s rate hikes in 2008 and 2011 in mind, which many analysts see as major policy mistakes.

For now, at least, hedge funds are also in the game.

Related columns:

Position of hedge funds in the face of the fall in US growth, peak in rates (May 23) Read more

Yellen could face G7 pressure on the dollar (May 18) read more

(Views expressed here are those of the author, columnist for Reuters)

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By Jamie McGeever in Orlando, Florida. Graphics by Jamie McGeever and Saikat Chatterjee Editing by Matthew Lewis

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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