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Hedge funds bet on euro decline

Financial Times – Hedge funds that specialise in anticipating central bank policy have ramped up their bets that the euro will fall as markets price in aggressive action from the European Central Bank to weaken the single currency.

So-called global macro hedge funds, which invest in a wide range of assets in line with their forecasts and analysis of economic and market trends, have raised their net short position in the euro against the dollar from about 14 per cent of net assets to about 18 per cent during the past month, according to data compiled by Lyxor, a $21bn hedge fund investor.

Reversing the euro’s appreciation has become a top priority for the ECB as it battles to prevent the eurozone falling into a dangerous deflationary spiral.

Since Mario Draghi, ECB president, hinted in early May that the bank would unveil fresh policy steps this month, the euro has fallen from almost $1.40 against the dollar to a three-month low of about $1.36.

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