Traders Slash Bets Against Dollar by Record Amount as U.S. Treasuries Soar

Foreign-exchange traders slashed their bets against the dollar by the most on record as demand for U.S. Treasuries soared amid concern the global economic recovery if faltering.

Aggregate bets the greenback will weaken against the euro, the yen, the Australian, Canadian and New Zealand dollars, the pound, the Swiss franc and the Mexican peso plunged by 154,105 contracts to 153,216 in the week ended Aug. 9, the biggest drop ever in Commodity Futures Trading Commission data compiled by Bloomberg beginning in November 2003. The data show that for the first time since January traders are betting the currency will appreciate versus the 17-nation euro on speculation Europe’s sovereign-debt crisis is spreading.

“The selloff in risk assets is due to the repricing of global growth,” said Ray Attrill, head of currency strategy at BNP Paribas SA in New York. “The volatility levels have just been off the scale in foreign exchange, and that has deterred people from taking up the Fed’s invitation to use the dollar as a funding vehicle for risk appetite.”

The Federal Reserve said in its Aug. 9 statement that it’s prepared to use a range of policy tools to boost the economy, including keeping the target interest rate for overnight loans between banks at record lows until mid-2013. The central bank’s decision came after the unprecedented cut of the U.S. AAA credit rating by Standard & Poor’s on Aug. 5 pushed equity markets’ shares down further amid concern a global slowdown will deepen.