Traders have ramped up bets on the dollar to the highest since April. Why are they buying it?

Traders sharply increased bets that the dollar will strengthen in the coming weeks: the volume of long positions on the American currency turned out to be a record since April. The dollar is supported by the uncertainty surrounding the US negotiations with Iran and the rally in US stocks associated with the AI boom.

Hedge funds, asset managers and other market participants now hold about $16.5 billion of long positions on the dollar - against $5 billion three weeks ago, Bloomberg writes, citing data from the U.S. Commodity Futures Trading Commission (CFTC).

The dollar's new surge, triggered by the stalled U.S.-Iran talks, is increasing its correlation with oil prices, a phenomenon atypical of the past two decades, said Bloomberg strategist Christine Aquino.

Rabobank now sees a risk that the Strait of Hormuz will remain closed for another three months, said senior currency strategist Jane Foley. She estimated that this could lead to the U.S. currency strengthening to $1.15 per euro in the coming month. "The dollar appears to be hovering somewhere between optimism and skepticism right now," Foley said.

Deutsche Bank also attributes the dollar's growth to the neural networks boom: exports of technological services can reduce the U.S. current account deficit by 1% of GDP. "The dollar will be the main beneficiary of future AI revenues," notes the bank's strategist George Saravelos. According to his assessment, the effect on the currency from the growth of capex in the AI sector is still moderate, but the dominance of US technology giants will bring them the main benefit from these investments.

The dollar rose in May as the truce between the U.S. and Iran made little progress toward ending the war. The conflict prompted investors to move money to the US: the oil shock lifted bond yields, and traders began to prepare for the possibility that the Fed might move to raise rates. On June 1, the dollar added another 0.3% after Tehran said it would suspend talks in protest against Israel's offensive in Lebanon, but the growth was held back by Donald Trump's later remarks about progress in dialogue, Bloomberg writes.

The dollar was also helped by data on the U.S. economy: on June 1, a report on record growth in industrial activity since the spring of 2022 was released. This strengthened expectations that the Fed will start raising interest rates this year. At the end of this week, the U.S. currency may be affected by the publication of the May report on employment in the country, which will help investors to adjust their forecasts regarding the Fed's policy under its new chairman Kevin Warsh.

This article was AI-translated and verified by a human editor