What happens ahead of Jackson Hole is key for FX after
Aug 19 (Reuters) -The dollar has been broadly sold ahead of the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming on Friday, leaving a growing number of traders short, and heightening the chance of a correction should the U.S. central bank governor not concur with raised expectations for a U.S. easing cycle.
For certain, those gambling that the dollar drops will buy, whether to book profits or to exit these bets should policymakers fail to meet expectations.
There is a strong belief that the Federal Reserve will embark on cycle of rate cuts that lead to changes at almost all of the next six meetings, and even talk of a 50 basis points reduction.
This has made a big impression on traders who have reduced bets on dollar rising from $36 billion in May to $10 billion, establishing shorts versus euro, pound, yen and Mexican peso. If not for a remarkably large $13 billion wager against Canada's dollar, the net position of FX traders would be short USD.
Changes envisaged for Japanese and U.S. monetary policy will still provide USD/JPY with significant support in early 2026, while expected changes in UK and eurozone interest rates are similar to those for the U.S.
Switzerland's rate is eyed dropping toward 0.5% in the autumn of 2025 where it may be a close match to Japan's.
The stimulus derived from easing cycles is set to stoke risk appetite fuelling stock rallies that will support demand for carry trades which are more likely to profit when funded by selling yen or francs.
For more click on FXBUZ
$, U.S. int rate outlook https://tmsnrt.rs/4cy8VRJ
Net USD position, USD/CAD positions and the USD index https://tmsnrt.rs/3YQHeQB
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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