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Hedge funds increase dollar shorts as Bessent fiscal details loom
The dollar slid after Treasury Secretary Scott Bessent expanded buybacks for longer dated securities by at least double on Aug. 19, helping drive the steepest daily decline in nearly three weeks.
Hedge funds have been building bearish positions in the US dollar while investors wait for more details on Treasury Secretary Scott Bessent’s fiscal plan aimed at curbing high US borrowing costs, LiveMint Markets reported. The pressure showed up after Bessent’s Aug. 19 decision to increase the size of buybacks for longer-dated securities by at least double, which triggered the dollar’s worst single-day drop in nearly three weeks and led to selling in the cash market.
In Asia on Monday, the dollar was little changed, but Barclays cited a more pronounced response from hedge fund clients in the “linear space,” where dollar selling accelerated alongside ongoing dollar supply throughout August. The outlet also noted that real money flows were less directional.
Pessimism about the dollar has also surfaced in options markets, where the premium to hedge the currency’s downside over the next month versus its upside climbed to the highest since February, according to a Bloomberg gauge cited by LiveMint Markets. Citigroup said broader demand for dollar downside hedges followed the buyback announcement, and Swiss franc implied volatility jumped to an over two-week high, while similar measures for other currencies moved higher.
LiveMint Markets added that demand for dollar put options versus the euro was 47% larger than dollar call options on Aug. 21, based on Depository Trust and Clearing Corp data for contracts valued at $150 million or more. The outlet said the repricing was also concentrated in short-dated options in Asian trading, including structures involving the Korean won.