Original title: “Attack” the dollar: hedge funds short-covering tide surges in U.S. debt to take a breather
Although the US Treasury default storm is still pending, the US dollar has set off a wave of sharp gains.
As of 19:00 on September 30, the U.S. dollar index hit 94.47, hitting the highest value of 94.50 this year during the intraday session. This means that the U.S. dollar index has risen by about 1.2% this week.
“Such a rapid increase in the U.S. dollar index really caught Wall Street hedge funds by surprise.” An American foreign exchange broker bluntly told reporters that since September 29, more and more Wall Street hedge funds have rushed to join the U.S. dollar short-covering camp. Stop loss exit. The reason is that they did not expect the Fed to tighten monetary policy sooner than the market expected.
In the early hours of Wednesday morning, Fed Chairman Powell said that the U.S. inflation rate may continue to remain high in the next few months. If inflation continues to become a serious problem, the Fed will raise interest rates.
“This indicates that Powell has completely changed the previous dovish stance and began to tend to speed up the pace of QE reduction and interest rate hikes.” He pointed out. However, the 180-degree change in the attitude of Wall Street investment institutions towards Powell was obviously insufficient, which led to their eagerness to cover short-term losses on the US dollar and suddenly pushed the US dollar index to a high of 94.50 for the year.
A Wall Street hedge fund manager confessed to reporters that with the surge of short-covering in the US dollar, many quantitative investment hedge funds are buying up option products on the US dollar index with an execution price of 96, betting that the US dollar index will continue to rise in the short term. However, if the U.S. dollar index continues to rise sharply, it is likely that emerging markets will face huge capital outflow pressure before the Fed cuts QE.
He revealed that many hedge funds are incorporating the sharp appreciation of the U.S. dollar into various asset valuation adjustment models, causing commodity and emerging market asset prices to be substantially lowered due to the continued appreciation of the U.S. dollar, triggering a new wave of capital outflows.
“At the same time, there is also a popular opinion on Wall Street that relevant departments in the United States are acquiescing to a sharp rise in the U.S. dollar index, thereby drastically lowering the prices of commodities such as natural gas and shipping logistics denominated in U.S. dollars, and ultimately effectively alleviating rising inflationary pressures. “The Wall Street hedge fund manager pointed out.
Hedge funds short-covering US dollars to stop loss surge
Many Wall Street hedge fund managers said that because the US Treasury default turmoil has damaged global capital’s confidence in the U.S. dollar and U.S. credit, many Wall Street investment institutions tend to short U.S. dollars on rallies before the two parties form a solution to increase the size of U.S. Treasury bonds. .
“However, Fed Chairman Powell suddenly turned to a hawkish stance and suddenly disrupted their investment strategy.” The aforementioned US foreign exchange broker bluntly told reporters. After Powell made the above-mentioned hawkish views, Wall Street financial markets quickly set off a wave of short-covering and stop-loss US dollars.
Reporters have learned from many sources that many hedge funds have previously established a large number of short-selling US dollar positions between 93.5-93.7. As the US dollar short-covering tide caused the US dollar index to rise rapidly, they were forced to liquidate the above-mentioned short positions and stop losses. As a result, the dollar index rose further, and easily stood above the 94 mark.
Sam Laughlin, an analyst at hedge fund MKS PAMP, believes that the rapid increase in U.S. bond yields this week has also had a huge pulling effect on the appreciation of the U.S. dollar. With the 10-year U.S. Treasury yield this week hitting the highest point of 1.55% in the past month, a large amount of speculative capital, given the practice of “U.S. Treasury yields are rising at the same time as the U.S. dollar”, under the “assistance” of the Fed’s upcoming QE reduction, Buying the U.S. dollar index on a large scale makes a profit.
“Despite the trend of U.S. bond yields rising and falling in the early hours of Thursday morning, speculative capital still has high enthusiasm for buying the U.S. dollar.” He pointed out. The reason is that Fed Chairman Powell hinted at the monetary policy meeting in early November to announce a QE reduction, which will make them more confident in their continued speculation to buy the dollar index.
The UBS Wealth Management Investment Director’s Office believes that under the resonance of high inflationary pressures and improving US economic data, the Fed will reduce QE earlier and faster than market expectations.
It is worth noting that in the face of the continued rise of the U.S. dollar, the trading strategies of investment institutions in different regions seem to be completely different. During the Asian trading session on September 30, some Asian investment institutions chose to short-selling the US dollar on rallies, causing the US dollar index to fall back to around 94.30. However, during the European and American trading hours, the US dollar index quickly recovered lost ground and set a new high for the year because of European and American investments. Institutions are still sparing no effort to compress short US dollar positions to stop losses, driving the US dollar index to rise further.
“Perhaps Powell suddenly changed his dovish stance, which caused Wall Street investment institutions to pay attention to the Fed’s early reduction of QE and hawkish interest rate hikes, which is much higher than the US Treasury default storm, which caused the entire financial market to show overwhelming enthusiasm for buying dollars.” The aforementioned Wall Street hedge fund manager speaks bluntly.
Who are the “beneficiaries” of the appreciation of the U.S. dollar?
Faced with the rapid rise of the US dollar index, the trading strategies of more and more Wall Street investment institutions are undergoing sudden changes.
“In the past two days, we are continuing to reduce long positions in commodities such as natural gas and crude oil, and withdraw some funds from emerging markets to buy US debt assets.” A partner of a large Wall Street asset management agency told reporters bluntly.
In his view, this may be a situation that relevant US departments are willing to see. On the one hand, the U.S. dollar and U.S. Treasury yields rose rapidly, which helped attract a large amount of capital to reinvest in U.S. Treasury assets to achieve higher returns, which to some extent offset the negative impact caused by the US Treasury default storm. On the other hand, commodity prices The tendency to fall due to the rise of the US dollar can also ease rising inflationary pressures.
It is worth noting that, affected by the continued appreciation of the U.S. dollar, the prices of crude oil, natural gas and other commodities, which have risen sharply before, have shown a trend of rising and falling, which has invisibly alleviated some inflationary pressures.
Many Wall Street hedge fund managers pointed out that relying on the rise of the dollar to ease inflationary pressures may not last long. On the one hand, the current tightening relationship between supply and demand has a much higher impact on commodity pricing than the appreciation of the U.S. dollar; on the other hand, Wall Street investment institutions are rapidly pushing up the U.S. dollar and are forming a strong atmosphere of “buy expectations and sell reality”. Pulling down the QE trigger on the month, the US dollar index is likely to rise and fall, and it is difficult to continue to contain the rise in commodities.
In addition, the appreciation of the U.S. dollar may not be able to offset the negative impact brought about by the storm of the default of U.S. Treasury bonds. Once the U.S. government finally “closes”, many global investment institutions will still sell U.S. Treasuries and other U.S. dollar assets based on the need for hedging.
“The current rapid rise in the U.S. dollar is likely to overdraft the Fed to reduce the market effect of QE and hawkish interest rate hikes in advance.” Sam Laughlin pointed out. This means that the volatility of the US dollar index will suddenly increase in the future, aggravating the violent turbulence of the global financial market.
(Author: Chen Zhi Editor: Bao Fangming)
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