Betting Against the Dollar Is More Popular Than Ever, BofA Says

(Bloomberg) -- Betting against the U.S. dollar was already the top second-half trade for currency and rates investors and its popularity is only growing as the greenback tumbles, according to a Bank of America Corp. survey.

A weaker dollar was the favorite trade for 36% of the fund managers surveyed this month by Bank of America, putting it well ahead of other ideas and up from 30% in July. So far that stance appears to be paying off, and a continuing slide in the currency appears to only be adding to the ranks of dollar bears.

The Bloomberg dollar index has continued to slide in August after last month notching a decline of more than 3.3%, its biggest drop since January 2018. It’s now close to 10% below its March peak and positioning data shows that bets against the greenback continue to mount.

“This is the most bearish sentiment has been in our survey history, while positioning was last this underweight USD in 2008,” strategists Ralf Preusser and Myria Kyriacou, wrote in the report. The development “can at least partly be explained by expectations of some erosion of the hegemony of USD as a reserve currency,” they wrote.

“This is the most bearish sentiment has been in our survey history, while positioning was last this underweight USD in 2008,” wrote strategists Ralf Preusser and Myria Kyriacou. The development “can at least partly be explained by expectations of some erosion of the hegemony of USD as a reserve currency,” they wrote in a report on the Aug. 7-12 survey which gathered responses from 89 fund managers that oversee a combined $1.2 trillion.

Emerging-market currencies appeared to benefit from the shift, with “a significant increase in bullish views.”

Bullish sentiment on the euro improved to record levels in the survey, driven mainly by the advent of the European Union’s Recovery Fund, which has also helped lift the common currency by around 6% from its mid-June low.

Other findings included:

• About 40% of respondents expect a decline in global U.S. dollar reserves over the next year
• About 30% say the EU recovery fund is driving bullish sentiment in the euro
• About 40% say the biggest threat to the risk-asset rally this year is the worsening of the global/U.S. Covid-19 crisis
• At the Sept. 16 Federal Reserve meeting, about 47% expect forward guidance only

©2020 Bloomberg L.P.