COMMENT-FX traders might sell a lot more dollars

FX traders might sell a lot more dollars during a U.S. easing cycle that is expected to start as early as March and could see the main U.S. interest rate below 4 percent by December.

This is a huge change from the "high for long" U.S. rate view that led traders to unwind the $18 billion bet they had made on the dollar falling in July last year. Traders turned long after - encouraged by a surprisingly hawkish view from the Federal Reserve in September.

There were still bullish in the middle of November with their $11.8 billion wager on the dollar rising, substantially bigger than the $7.2 billion they currently have staked on the greenback dropping.

In essence, the dollar's drop since September has been fuelled by the paring of bets on it rising, leaving speculators poorly prepared for the expected drop in interest rates.

Speculation on a dollar fall could easily exceed last year's 18 billion wager before it has a material impact on the dollar. In 2021, bets on a fall exceeded $35 billion after the dollar index dropped from roughly 102 to 90.

So far, the index has dropped from around 106.50 toward 102 - the start point of 2020's sell-off. The big target for the current drop is 94.42.

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