Due to the Federal Reserve's policy guidance of maintaining high interest rates for a long period of time, the interest rate differential between the United States and other economies continues to be at a high level, thus pushing the US dollar to a possible weekly longest consecutive rise since February. However, foreign exchange traders are betting that the US dollar's interest rate advantage will not last.

On Friday, the Commodity Futures Trading Commission (CFTC) will release the latest data as of Tuesday (June 11), revealing whether speculators continue to maintain this sentiment before the Federal Reserve policy meeting and key CPI inflation data are announced. Prior to early June, speculators had significantly reduced their long bets on the US dollar for six consecutive weeks.

Federal Reserve officials hinted on Thursday that there would only be one interest rate cut this year. Federal Reserve Chairman Powell stated that evidence of inflation close to the 2% target would be needed before policy would be relaxed. Previously released CPI reports were weaker than expected, causing traders to increase their bets on the earliest rate cut by the Federal Reserve in September.

Even after market turbulence, the Bloomberg US dollar index has maintained its fourth consecutive week of upward momentum, the longest period of growth since February, with trading prices slightly lower than this year's highest point. Previously, two major central banks, the European Central Bank and the Bank of Canada, took the lead in reducing interest rates, providing further support for the US dollar.

Analysts at JPMorgan Asset Management in their 2024 mid-term investment outlook wrote that the US dollar will continue to benefit from the prospect of the Federal Reserve cutting interest rates later than other central banks, but is "likely to peak soon."

"We may have already passed the peak of optimism for the US economy and pessimism for other regions of the world. Stable interest rate differentials and shrinking growth differentials may restrain the appreciation of the US dollar, keeping it strong but not stronger," they wrote.

Non-commercial traders (including asset management companies, hedge funds, and other speculative market participants) have reduced their long positions on the US dollar by more than two-thirds since their recent peak in bullish sentiment in April. Their current long bets on the US dollar are worth about $10.6 billion, the lowest level since mid-March.

Shaun Osborne, foreign exchange strategy director of Bank of Nova Scotia, stated that "the US dollar's interest rate advantage has reached its peak," which should dampen enthusiasm for the US dollar. However, real impact requires "market confidence in the Federal Reserve's monetary policy easing."

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