Traders Go All-In on the US Dollar as Global Reserve Holdings Hit Century Low

• US dollar’s bullish positioning climbed to an 18-month high, with speculative long bets reaching $34.3 billion
• The US dollar’s share of global foreign exchange reserves has fallen to its lowest level this century, according to IMF COFER data
• The divergence between trader optimism and central bank diversification shows a growing split in the dollar’s short- and long-term outlook

The US dollar seems to be sending two very different signals at once. Hedge funds and other speculative traders have built their biggest bullish positions in more than a year. They are betting that the greenback still has room to climb. Yet, away from the futures market, central banks continue trimming their dollar exposure. They are pushing the currency’s share of global foreign exchange reserves to its lowest level this century. But the real question is where the dollar is headed next.

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Traders Are Making Their Biggest US Dollar Bet in 18 Months

The latest Commodity Futures Trading Commission (CFTC) positioning data shows speculative long positions in the US Dollar climbed to $34.3 billion in the week ending June 23. This is the largest bullish wager in 18 months and marks the 15th consecutive week of net long positioning.

The move has been quick. Bullish dollar positions have more than tripled over the past seven weeks as hedge funds and asset managers increasingly positioned for a stronger greenback. At the same time, bearish bets against the Japanese yen climbed to their highest levels since 2017. This shows the growing conviction that the dollar could continue outperforming major currencies.

The enthusiasm among traders contrasts with what reserve managers have been doing for years. According to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) data, the US Dollar now accounts for its smallest share of global foreign exchange reserves this century. Instead of abandoning the dollar altogether, many central banks have gradually diversified into other currencies. This includes the euro, Chinese yuan, and Canadian and Australian dollars, while also increasing gold holdings.

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Analysts are attributing the shift to diversification rather than a collapse in confidence. This is because the dollar still remains the world’s dominant reserve currency with a share well above any rival.

Short-Term Momentum Vs Long-Term Shift

The two trends are not necessarily contradictory. Futures traders usually react to macroeconomic expectations over weeks or months, while central banks build reserve portfolios over years.

For now, the US Dollar continues to benefit from strong speculative demand. At the same time, the gradual decline in its reserve share suggests the global financial system is slowly becoming more diversified.

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