The USD Bucks Consensus In H121

With Q2 now in the books the G10 FX scorecard flags that only the CAD (on the oil market rally and hawkish developments surrounding the BoC) and GBP (largely on the UK's early outperformance in the fight vs. COVID when compared to most of its peers, in addition to positive capital inflow dynamics and perhaps an unwind of some of the Brexit-related negativity) outperformed the USD during H121. The broader DXY was up ~2.8% YtD come the end of June, bouncing ~3.6% from the January (YtD) lows.

• The JPY finds itself at the bottom of the G10 FX table at present, with the upward bias in U.S. equity markets YtD and the consensus view that the BoJ will not tighten policy over the broader forecast horizon (vs. the developments in tightening expectations at the Fed) weighing on the safe haven.
• A reminder that the consensus at the start of '21 was for a bearish year for the USD.
• CFTC non-commercial net positioning (covering the USD's G10 peers with CME futures contracts, in addition to MXN, BRL & RUB) suggests that speculators are still looking for a weaker USD (net short the equivalent of ~$13.0bn or ~7.2% of the relevant open interest), although the latest positioning swing (in the week ending 22 June) saw the largest round of net USD buying since Mar '21, totalling the equivalent of ~$6bn. Note that leveraged funds currently hold a marginal net short USD position across the aforementioned futures contracts (net short the equivalent of ~$2.2bn or ~1.2% of the relevant open interest), while the cumulative position declared by asset managers is much deeper (net short the equivalent of ~$55.3bn or ~30.7% of the relevant open interest).
• The net short positioning registered across all 3 of the aforementioned investor groups sits off of the cycle extremes that were registered earlier this year.
• Expectations surrounding the future of Fed policy (in outright and relative terms) seemingly represent the biggest risk to the broader view re: USD weakness at present, with a consensus now in place that looks for a declaration of a Fed taper announcement by the end of calendar '21 (with the potential for hints surrounding the matter to be dropped at the Jackson Hole symposium, scheduled for August), and broader expectations for the tapering to get underway in early '22 at the latest. Note that the latest FT survey surrounding Fed policy pointed to 50bp of Fed hikes taking place by the end of '23, with the majority of those surveyed being of the view that at least that amount of tightening would take place, based on a ~75% degree of certainty (a "large minority" attributed a 90% degree of certainty to at least 50bp of tightening over that period).

Source: Bloomberg