This might be a good time to buy dollars
Oct 1 (Reuters) -This might be a good time to buy dollars - when traders are betting heavily on it dropping and there is an increasing amount of uncertainty that may boost its value.
Traders are broadly short dollars ahead of a U.S. election and the end of the year, both of which could potentially lift the greenback.
The weaker dollar is effectively easing U.S. monetary policy, lessening the need for the Federal Reserve to match the rapid pace of rate cuts that are expected, at a time when risk aversion stemming from wars in Eastern Europe and the Middle are also likely to support it.
In contrast, the strength of other major currencies like the euro - which has approached the peak of last year's range - and the pound - which has risen far above its 2023 high - are tightening policy, reducing the positive effect of any interest rate cuts.
Japan's yen has shot higher, in effect significantly tightening policy in the wake of measures taken by the central bank in July that resulted in a broad risk-averse shock.
The likely paring of risk ahead of the U.S. election, which will logically boost the dollar (given short positions), may be followed by demand that often surfaces at year-end, and has even led to speculation about a shortage of dollars in the past few years.
After a steep drop between July and September, the dollar index became oversold and has stopped falling, heightening the risk of rebound.
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USD index https://tmsnrt.rs/3NbQ4kQ
Jeremy Boulton is a Reuters market analyst. The views expressed are his own; Editing by Kevin Liffey
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