Hedge funds have turned the most negative on the euro since the start of the year ahead of a watershed European Central Bank decision this week that could see policymakers break their cycle of interest-rate hikes.
Speculative traders held a net short position of 6,421 contracts last week, a turnaround from the previous week when they were net long, according to the latest data by the Commodity Futures Trading Commission. Longer-term asset managers also trimmed their net long positions.
“Stagflation in Europe is a real risk,” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management, who is long the dollar against the euro. “Growth is disappointing, but limited progress is being made in bringing down core inflation.” The outlook for the euro area’s economy is fading rapidly. The EU Commission cut its growth forecasts for the region on Monday, and is now expecting output in the 20-member bloc to rise by 0.8% in 2023, compared with an earlier forecast for 1.1% growth. Next year’s forecast was lowered by the same amount, to 1.3%.
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