Speculators Betting on Dollar Plunge

Thursday, May 28, 2009 10:12 AM

By: Dan Weil

Things aren't looking too rosy for the dollar. Many experts say the currency's recent drop is just a prelude of things to come.

And, a lot of these people are putting their money where their mouths are.

Speculative bets against the dollar have surged to their highest level in 10 months, the Financial Times reports.

Position statistics from the Chicago Mercantile Exchange (CME), home to currency futures and options trading, show that short dollar positions against the euro exceeded long dollar positions by 12,250 contracts during the week ended May 19.

That was the largest gap in favor of the dollar since the week of July 15, when the euro hit a record high of $1.6038. The euro now stands at $1.3982.

The dollar has dropped 5 percent in the last two weeks against its European counterpart.

The CME data are viewed as significant, because many currency market players, including hedge funds, use the exchange's derivatives to establish their foreign exchange positions.

Experts see plenty of bad signs for the U.S. currency.

Investors' renewed appetite for risk is hurting the dollar, for example. "The market will be risk-seeking, so all the money that was repatriated into the U.S. will be put back to work outside the U.S," Parker King, head of currency investing at Putnam Investments, tells The Wall Street Journal.

"For the time being it's hard to imagine a sharp reversal of the dollar's trend," Roberto Mialich, currency strategist at Unicredit bank, tells Reuters.

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