The dollar was on the back foot on Monday after sustaining its biggest weekly drop in four months last week as traders remained cautious about the prospects of trade talks between the US and China at this week's G20 summit (28 29 June).
The greenback has been on the receiving end of a broad market selloff in major currencies as global central banks led by the U.S. Federal Reserve signaled a dovish outlook on monetary policy due to growing signs of a weak global economy.
The dollar fell 1.4% against other currencies last week, its biggest weekly drop since mid-February. On Monday, it edged 0.1% lower to 96.11.
But the selloff has raised concerns that markets have turned excessively bearish against the dollar, especially since the Fed has the most room to cut interest rates relative to its peers, such as the European Central Bank, where rates are already in negative territory.
“U.S. rates are still higher than other countries’ rates and U.S. bond yields are not likely to go negative any time soon, whereas many other countries’ yields are already negative far out into the curve,” said Marshall Gittler, chief strategist at ACLS Global.
“It’s the best of a bad bunch.”
Latest weekly positioning data confirmed that view.
While hedge funds have turned mildly bearish on the outlook for the dollar in the latest weekly positioning figures, they have ramped up bearish bets against currencies such as the Australian dollar on fears of rising challenges for the global economy.
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