Hedge Funds Ratchet Up Dollar Shorts Amid Bessent's Fiscal Strategy
Hedge funds are ramping up their bearish positions against the US dollar as investors weigh Treasury Secretary Scott Bessent's plans to manage elevated US borrowing costs and the government's debt profile.
The move, which has been dubbed a 'Treasury twist' by Bessent, involves doubling the Treasury's purchases of longer-dated US government bonds through its buyback programme. This has driven the greenback to its biggest one-day decline in almost three weeks and prompted heavier selling across currency markets.
The dollar was little changed in Asian trading on Monday, but positioning data and activity in the options market point to growing investor concern over its outlook. The cost of protecting against a fall in the dollar over the coming month relative to positioning for a rise has reached its highest level since February, according to a Bloomberg measure.
The shift has been particularly pronounced in Swiss franc options, with one-month implied volatility rising to its highest level in more than two weeks last week. Volatility measures for the euro, pound, and Canadian dollar have also increased as institutional investors have shown greater interest in structures that benefit from a weaker US currency.