Hedge Funds abandoning Dollar’s biggest bull run

Hedge funds are close to calling it quits on the dollar’s best run in a generation.

Large speculators cut net bullish positions on the greenback to the lowest in almost two years last week. If they keep trimming at the current pace, those bets will be wiped out entirely by the end of the month. Currency options are signalling a less than one-in-four chance the greenback will extend its two-year, 25% surge against the euro in 2016, while against the yen the likelihood is less than one in 10.

As hedge funds abandon dollar wagers, investors and strategists have lowered their outlook for the currency. The Bloomberg Dollar Spot Index slumped 3.9% in March, its biggest monthly drop since 2010, as Federal Reserve Chair Janet Yellen signalled that the central bank would act “cautiously” as it looks to raise interest rates. Continued dollar weakness would be good news for US companies that have seen their profit eroded the past two years by currency effects.

“We’re definitely near the end for the dollar bull run if we have not already seen the peak,” said Brendan Murphy, director at Standish Mellon Asset Management. “We’re clearly in this topping-out process.”