Hedge Funds Have Cut FX and Rate Exposure Since November, Traders Say

Many hedge funds had already reduced their foreign-exchange and interest-rate exposure this month, limiting their exposure to currency and rate swings after U.S. inflation data were released. According to Sina Finance, traders said currency trading within ranges and interest-rate volatility had earlier prompted many funds to reduce positions; funds are seeking high-conviction trades, but such opportunities are scarce. On Tuesday, the Bloomberg Dollar Index rose 0.5%, while the two-year U.S. Treasury yield climbed about 18 basis points. Some of the information came from foreign-exchange traders familiar with the trading, who requested anonymity because they were not authorized to speak publicly.