Hedge Funds Bet Massively Against the Dollar

Cure for rates, poison for the dollar. A few days after we noted that $4 billion in bond buybacks by Scott Bessent did not sway U.S. rates, a new front opens in the foreign exchange market. Hedge funds are ramping up their bearish bets on the dollar, awaiting the full details of the Treasury Secretary's tax plan. A bet that, if confirmed, would add further pressure to the already existing strain on long-term rates, in a foreign exchange market that trades nearly $7.5 trillion daily worldwide. Key points of this article: * Hedge funds have intensified their bearish bets on the dollar, waiting for details of the Treasury Secretary's tax plan. * The dollar experienced its worst session in three weeks, amid increased demand for put options. The dollar suffered its worst session in three weeks. The timing of the decline almost coincides with the announcement on August 19. Remember. On that day, Scott Bessent announced at least a doubling of the amount of his long bond buybacks, a move intended to reassure the bond market. The opposite effect occurred on the dollar, which recorded its worst session in nearly three weeks following the announcement. Two days later, on August 21, DTCC data (Depository Trust and Clearing Corporation) showed that demand for put options on the dollar against the euro exceeded call options by 47%, on contracts of at least $150 million each. A net imbalance, reflecting an assumed bearish positioning rather than mere precautionary hedging. Distrust extends beyond the greenback against the euro: options on the Swiss franc also displayed their highest implied volatility in over two weeks, with similar movements affecting the British pound and the Canadian dollar. Investors are now waiting for the full details of the tax plan before reopening their positions in the opposite direction. Hedge funds, from buyers to sellers in a matter of weeks. The sentiment shift is all the more striking as it comes after a period of massively inverse positioning. Earlier this year, speculative long bets on the dollar reached $48 billion, their highest level since 2015. This same group of traders is now shifting to the selling side, betting on the continued weakening of the greenback until the full details of Bessent's tax plan are known. The issue goes beyond the simple mechanics of rates: the more the Treasury multiplies artifices to artificially compress the ten-year yield, the more markets seem to read it as an admission of budgetary weakness rather than a proof of control. A strategy that could backfire. The risk for Bessent lies in the very nature of the problem he is trying to solve. Lowering long-term rates without driving away dollar holders is a balancing act that few Treasury Secretaries have succeeded in throughout recent history. The last comparable attempt dates back to the 1980s, under a debt and rate configuration much less strained than today. If bond buybacks fail to sustainably compress yields while simultaneously fueling distrust towards the currency itself, the scenario of double failure becomes plausible. It is precisely this ground that feeds what JPMorgan analysts have dubbed the debasement trade, a basket combining gold and Bitcoin built against the erosion of sovereign currencies. Earlier this year, the same hedge funds were showing a long position on the dollar at its highest level since 2015, proving that market sentiment can turn in just a few weeks.