Bets that the dollar will go up are no longer so hot.

The Trump boost for the US currency, which saw the dollar index hit a 14-year high at the start of the year as investors bet the new president would boost the US economy through tax cuts and job creation, is running out of steam.

As the chart above shows, speculators cut long positions on the dollar for the fourth week in the row in the week to January 31st, according to figures from the Commodity Futures Trading Commission out on Friday. That puts bets the dollar will rise at their weakest level since mid October – close to a four-month low.

Or, as Kit Juckes from SocGen puts it: “Dollar bulls are bailing out almost as fast as bond bears.”

These figures are just a small slice of a large market – they reflect only futures contracts traded on the CME – but nonetheless they’re seen as a decent indicator of what speculators more broadly are doing.

The figures are backed up by the dollar index itself. The greenback has fallen 4 per cent since the start of the year. That’s been driven partly by falling expectations the Federal Reserve will tighten interest rates next month – wage growth rose less than expected in Friday’s jobs report, for example.

But the dollar is also trading lower on comments by President Trump and his advisers suggesting currencies such as the euro and yen are undervalued, which have sent the dollar weaker.

Political risks look set to continue this week. Analysts are keeping a close eye on Friday’s meeting between President Trump and his Japanese counterpart Shinzo Abe as an indicator of how the dollar might trade against the yen.

For dollar bulls, these political risks pose trading issues. From analysts at BMO Capital Markets, who advocate buying the dollar at these levels:

It appears the Trump administration is signaling that it will lean against any US dollar strength its policies might trigger. The administration is thereby making it riskier for FX investors to try to get ahead of any policy-driven US dollar rally.

(Chart provided courtesy of Bloomberg.)

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