- June 25, 2021
- Posted by: Stratford Team
- Category: Economy
The dollar has rallied about 2% this month, reversing most of the losses endured since the end of March. And hedge funds have built up a big bet against the greenback, according to analysts at SentimenTrader, a research firm.
That has left these speculative investors exposed to a “pain trade,” which is one where the most investors get hurt by a move in an asset. The problem for hedge funds here is a bit like a short squeeze on a meme stock. As the dollar rises and their bets against it are exposed to losses, they will have to buy back the dollar to shrink their trades, pushing the dollar higher and causing more losses.
SentimenTrader has studied the history of heavy hedge-fund short bets against the dollar and found that on average when they are as negatively positioned as they are today, the dollar has often jumped higher. From a position like this, the annualized return for the dollar has been 2.6%.