Hedge Funds Shift Back into Dollars as US Yields Surge

Hedge fund speculators rapidly rebuilt bullish dollar DXY positions in the week ending September 22, driven by surging US Treasury yields and renewed expectations for tighter Federal Reserve policy.

The Dollar Index rose about 1% during this period, ending a seven-week retreat from its record high. Saxo Bank attributed this shift to a widening of the dollar's yield advantage following the Fed's latest 25-basis-point rate hike and increasingly hawkish expectations for the policy outlook.

The yen suffered the biggest positioning reversal as rising US yields outweighed the impact of the Bank of Japan's rate hike to 1.25%. Meanwhile, the Bloomberg Commodity Index fell 1.8%, with energy leading the decline due to improving oil flows through the Strait of Hormuz and the restart of Saudi Arabia's East-West pipeline.

Copper (HG1:COM) rebounded around 6% following a period of profit-taking, supported by persistent concerns about tight supply outside the US and exceptionally low exchange inventories in China. Silver and platinum XPTUSD also advanced despite rising US bond yields US10Y and a stronger dollar DXY.