Hedge funds are stepping up their bets against the U.S. dollar: markets are awaiting Bessent's plan
The expansion of the U.S. government bond buyback program and the impending new U.S. sanctions against Iran and its allies are increasing pressure on the U.S. currency
On Monday, the U.S. dollar is hovering near multi-month lows. Photo: Tamakhin Mykhailo/Shutterstock
On Monday, the U.S. dollar is hovering near multi-month lows: markets are waiting for Treasury Secretary Scott Bessent to unveil details of the fiscal plan and announce new sanctions against Iran, Reuters reports. Against this backdrop, hedge funds are actively increasing their short positions on the U.S. currency, Bloomberg notes.
Some market participants believe that the dollar will ultimately pay the price for the Ministry of Finance’s aggressive attempts to curb the rise in borrowing costs, the agency notes. The Treasury’s shift toward active management of the government bond market—in particular, Bessent’s proposal to conduct a larger-than-planned buyback of long-term debt while simultaneously selling a significant amount of short-term securities—could undermine confidence in the U.S. currency, Bloomberg reports.
“We are seeing a pronounced reaction, particularly from hedge fund clients in the spot market, where dollar selling has accelerated amid sustained supply throughout August,” said Torsten Schöneborn, co-head of G-10 currency trading at Barclays.
Pessimism about the dollar is also evident in the options market, where the premium for hedging against a decline in the dollar over the next month has risen relative to the premium for hedging against its rise to its highest level since February, according to Bloomberg. This reassessment is particularly noticeable in the dollar-Swiss franc pair, says Akshay Saxena, head of Asian currency options trading at Citigroup.
What's on the market
Pressure on the U.S. currency became evident last week when the U.S. dollar, against the backdrop of Bessent’s decision to “at least double” the volume of long-term government bond purchases in the coming quarter—from $2 billion to more than $4 billion— — fell to its lowest level since May. Gold and Bitcoin, on the other hand, rose by 5% and nearly 23%, respectively, over the week following this decision. The signal of intervention spooked traders and hit the dollar, according to Reuters.
“The more Bessent tries to put pressure on the [government debt] market, the more the markets will resist,” said Mark Ostwald, chief strategist at ADM Investor Services, as quoted by Reuters. “As a result, you’ll see the same thing we saw last week: strong support for gold and Bitcoin amid these fears of [currency] devaluation, and people will seek to diversify by moving away from G7 government bonds—especially because they fear that no one is working to rein in budget deficits,” he added.
What Else Is Weighing on the U.S. Dollar?
The dollar’s recovery is also being held back by geopolitical tensions. New U.S. sanctions against Iran and its allies—which Bessent also plans to announce on Monday— August 24, could strain relations with China—the main buyer of Iranian energy resources—warns Chris Turner, global head of markets at ING Groep, in comments to Bloomberg. The situation is exacerbated by the breakdown of trade negotiations between the U.S. and Canada and the mutual imposition by both sides of 50% tariffs on certain goods.
Markets are also awaiting Friday’s speech by Fed Chairman Kevin Warsh in Jackson Hole, where he will likely have to answer questions about the outlook for U.S. interest rates, as well as the Treasury’s repurchase of Treasury bonds, according to Reuters. At its last meeting in July, the Fed left rates unchanged for the fifth consecutive time.
This article was AI-translated and verified by a human editor
