US Dollar Shorts Hit All Time High

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In Brief
  • US Dollar shorts have reached all-time-highs.

  • Foreign currency is strengthening compared to dollar.

  • The stimulus packages behind the changes also affect crypto.

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US Dollar shorts have hit an all-time high. While the US Federal Reserve prepares more cash for a stimulus bill, foreign currency, and Bitcoin, are seeing their values rise like never before.

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Data from the CFTC show the largest week-to-week drop against the dollar, since September. Net shorts of USD reached the highest mark on record in terms of dollars. The shorts reached $35 billion, a $3.7 billion increase in other currencies, according to Scotiabank.

Europe did well last week, with Euro (EUR) longs rising by $1.8 billion. On Forex markets, the Euro has hit its highest point since April 2018 this January.

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Likewise, the Pound saw a move of USD 793 million long to 1.1 billion.

It is important to note that the US stock market has risen, too. After all, the purpose of lower interest rates and money printing is to funnel money into the markets. SPY, an ETF which tracks the S&P 500, is up about 1% in January.

And of course Bitcoin is up about 8% in January, 2021.

Almost every currency that Scotiabank tracks, such as Canadian dollars (CAD), Australian dollars (AUD), and Mexican pesos (MXN) have grown this last week against the dollar.

However, the bank warns, only AUD and MXN are up against the dollar year to date.

Meanwhile, goldbug Peter Schiff’s favorite Twitter subject saw longs fall $8.8 billion.

The lesson? The dollar dropped last week, and crypto rose.

Analysis of Forex for week ending Jan 15, 2020. Scotiabank.

Biden’s trillion dollar stimulus

US citizens have been receiving a $600 check in the mail recently as part of congress’s latest stimulus. That number is low compared to the $2000 supported by both the democrats and President Trump. The latter amount was rejected by Republicans.

While that stimulus did pump money into the economy, President-elect Biden is promising more.

The new plan could see over $1 trillion more dollars funneled into the US economy. This new plan would see a more egalitarian approach, with some money earmarked for minority communities and better distribution of COVID-19 vaccines.

Still, the US stimulus had been widely criticized for simply printing more dollars, rather than investing in fundamentals. Calling the huge cheap loans businesses get “Socialism for the rich”, some are upset.

But perhaps a deeper problem is that the dollar is being diluted. Federal Reserve chairman Jerome Powell revealed last year that US policy was going to be softer on the threat of inflation than before.

So while the dollar sees potential inflation, other assets, which inflate less (like foreign currency) or have a fixed total amount (like Bitcoin) are rising.

The crypto sphere has been crediting the US federal government’s stimulus plans (and money printing) as a big impetus for Bitcoin’s recent rise.

The spike in USD shorts and strengthening of other currencies points to expected inflation and less confidence in the dollar as the world’s reserve currency. Luckily, there is a little cryptocurrency called Bitcoin that would love to take its place.

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Harry Leeds is a writer, editor, and journalist who spent much time in the former USSR covering food, cryptocurrencies, and healthcare. He also translates poetry and edits the literary magazine mumbermag.me.

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