Hedge funds have significantly ramped up their short positions against the US dollar, reaching levels not seen in three months, as they anticipate Treasury Secretary Scott Bessent's upcoming fiscal consolidation plan. Data from the Commodity Futures Trading Commission (CFTC) as of August 20 shows that net non-commercial positions against the dollar surged to $20.3 billion. This aggressive shorting reflects investor apprehension that Bessent's interventionist approach, particularly his commitment to buying back long-term government debt, is aimed at driving down US borrowing costs at the expense of the dollar's value.
The sentiment among many investors is that Bessent's strategy, which includes an announcement of an increased focus on fiscal consolidation and potentially larger debt buybacks, signals a deliberate weakening of the dollar. Experts like Gerald Gan of Reed Capital believe Bessent is intentionally pushing down long-term real rates and signaling tolerance for a weaker dollar to support the economy. Other strategists, such as Amir Anvarzadeh of Asymmetric Advisors, view the dollar as a "sacrificial lamb" in the effort to stabilize yields, suggesting that while the immediate goal isn't necessarily to weaken the dollar, it is an inevitable consequence.
This move by Bessent, which marks him as the most interventionist Treasury chief in decades, has already seen the dollar fall to a three-month low against a Bloomberg gauge after the initial buyback announcement. The yen, Swiss franc, and New Zealand dollar were among the currencies that gained against the greenback. Audrey Childe-Freeman of Bloomberg Intelligence noted that traders likely interpret this as an attempt to suppress market pricing around US fiscal sustainability and the Federal Reserve's inflation-fighting credibility, adding to the bearish outlook for the dollar. While some analysts, like Masahiko Loo of State Street Investment Management, believe the dollar still has near-term support from AI-driven inflows and higher oil prices, the broader consensus among those taking short positions is that Bessent's actions will ultimately devalue the US currency.
The market's reaction also points to a broader questioning of the US policy mix, extending beyond interest-rate differentials. Shoki Omori, chief fixed income strategist at Deutsche Bank AG, highlighted that the dollar's broad fall, even as short-term bonds sold off and Fed hike expectations held firm, indicates investors are looking at the larger picture. Omori expects the yen to be the biggest beneficiary over the next three to six months, also favoring gold and the Swiss franc, and the euro as alternatives to the dollar, arguing that the Treasury can buy back bonds but cannot buy back the dollar. This aligns with the view of Evercore ISI strategists, who suggest Bessent would welcome these foreign exchange movements, consistent with the Trump administration's preference for a weaker dollar to boost US competitiveness and reduce trade imbalances.
