Hedge Funds get Burned by Dollar’s Slide

In just the first two weeks of 2006, the Yen has already managed to appreciate 3.5% against the USD, costing some of the most prominent macro hedge funds hundreds of millions of dollars in losses. Hedge funds, with their vast pools of investment capital and proportionately large research teams, are usually ahead of the curve in financial markets. That so many of them failed to foresee the USD’s sudden slide has come as a great surprise to many analysts. Many hedge funds have interpreted the recent fall in the value of the USD as a harbinger of further depreciation. Accordingly, they have quickly and significantly cut their long positions in the USD, a fact that is born out by official statistics. Reuters reports:

Long dollar positions measured against the yen, euro, sterling, Swiss franc, Canadian dollar and Australian dollar were cut to 1,241 futures contracts in the week to January 3 from 24,274 contracts the week before, according to the CFTC.

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