The US Dollar may not be the world’s number one currency for much longer. Hedge funds have decided to begin shorting the greenback for the first time in over two years. Ongoing economic concerns attributed to the COVID-19 pandemic cannot be ignored.
Hedge Funds Short the US Dollar
It is unusual to see hedge funds actively take up a short position against the US Dollar. While it is not the first time this has happened, it always raises some eyebrows. The previous time when hedge funds shorted the greenback was in May of 2018. At that time, the financial outlook was bleak as well, but these short positions flipped around relatively quickly.
What makes the year 2020 is the COVID-19 pandemic. Dealing with a global virus is something society hardly ever has to deal with. It also creates problems for governments and central banks all over the world. Those problems are the main reason why the US Dollar has been losing a lot of value against the euro, for example.
At its core, this means investor confidence in the US Dollar is weakening. If this trend remains in place, it may cost the greenback its dominant position in traditional finance altogether. Today, the global monetary system primarily relies on the US Dollar. Considering that currency’s weakening position, the time has come to look into alternative solutions.
Glancing at the Dollar Index, the outlook is very bleak. It has hit a 52-week low, and is seemingly intent on dropping down even further. This index is designed to measure the value of the US Dollar to a basket of foreign currencies. Dropping in value indicates the greenback keeps weakening as more time progresses.
Keeping an eye on Other Markets
Weakening national currencies are usually beneficial to alternative markets. For cryptocurrencies and precious metals, a weaker US Dollar is a blessing. Actively losing purchasing power in USD often forces consumers and investors to reevaluate their current approach. More often than not, they will begin looking for alternative investments.
In theory, this can catapult Bitcoin back over $12,000 in quick succession. More and more hedge funds have begun showing an interest in Bitcoin and other cryptocurrencies. Those will benefit greatly from traditional hedge funds shorting the US Dollar.
At this rate, the final months of 2020 will be pretty interesting for all markets. Shifting to a new world currency remains unlikely, but the ongoing concerns cannot be ignored either.