Why Dollar-Yen Trades Are Losing Favor Among Hedge Funds

Hedge funds have reportedly unwound long dollar-yen trades after the U.S. Federal Reserve hinted the pace of prospective hikes could be slower.

Price Movement: From a low of 137.46 against the dollar yesterday, the yen rose to the 135.11 mark on Thursday morning in Asia to hit a three-week high.

The appreciation in the currency is good news for Bank of Japan Governor Haruhiko Kuroda who stood firm with his ultra-easy monetary policy earlier at the risk of further yen depreciation.

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Short Yen Trades: The short yen trades were one of the biggest global macro trades of the year that was marred with high inflation and a subsequent rise in the dollar over anticipated Fed rate hikes. Larger flows from institutions and reserve managers are yet to be witnessed, sources told Bloomberg.

The Unwinding: The sharp moves indicated that short-yen strategies could have hit limits as investors try to understand how major central banks may become less aggressive in hiking rates considering recession risks.

Expert Take: Christopher Wong, a senior foreign-exchange strategist at Malayan Banking Bhd told Bloomberg the yen could strengthen close to the 133 level. The dollar-yen should move much lower if markets are expecting some sort of a global recession, Wong said.

A contrary view comes from RBC Capital Markets’ Alvin Tan who said they expect the dollar-yen to test 140 in coming weeks on the back of a broadly higher greenback. Tan told Bloomberg given the downward movement in global bond yields, the upside potential in the pair is more limited.



Image and article originally from www.benzinga.com. Read the original article here.