Dollar sentiment deteriorates ahead of Fed meeting

Positive economic data included US producer price index’s 0.2% gain in August after 0.1% decline in July, and 0.4% rise in consumer prices in August instead of an expected 0.3% gain. On negative side US retail sales slipped 0.2% on month in August from downwardly revised 0.3% increase in July and industrial production fell 0.9% on month in August which can be explained by stoppages due to hurricanes. Investors built net short dollar position ahead of Federal Reserve’s interest rate decision. As is evident from the Sentiment table, sentiment improved for major currencies except for euro and Swiss franc. And the euro, Canadian and Australian dollars remain the three major currencies held net long against the US dollar.

The euro bullish sentiment weakened considerably despite a 0.1% increase on month in industrial production in July following a 0.6% drop in June and increase in headline inflation to 1.5% in August from 1.3% in July. The net long euro position fell $3.46bn to $9.41bn. Investors cut the gross longs and built shorts by 1077 and 22228 contracts respectively. The British Pound sentiment improved dramatically as the Bank of England warned UK interest rates could rise faster than traders currently are pricing in while the policy was kept unchanged. The net short position in British Pound narrowed $2.97bn to $0.86bn as investors built the gross longs and cut shorts by 7618 and 28306 contracts respectively. The bearish Japanese yen sentiment moderated marginally despite 0.8% decline on month in industrial production in July after 2.2% increase in June. The net short position in yen narrowed $0.75bn to $5.75bn. Investors built the gross longs and covered shorts by 1793 and 4182 contracts respectively.