• Hedge funds are net short against the dollar for the first since May 2018 amid extreme weakness, Bloomberg reported Monday. 
  • The greenback has fallen about 6% against the euro alone since the start of the year.
  • Big government and central bank s pending has pushed interest rates down and weakened the dollar. 
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Hedge funds are shorting the dollar and are bearish on the greenback for the first time since May 2018 in the latest sign that the world's top reserve currency is declining further and unlikely to bounce back any time soon. 

Bloomberg reported Monday, citing data from the Commodity Futures Trading Commission, that net futures and forward positions held by leveraged funds against eight currencies not including the dollar, fell to negative 7,881 contracts last week.

That means that more investors are betting against the dollar than on it right now. Bloomberg said the shorting spree was driven by bullish bets on the euro. 

The euro has outperformed the dollar by 6% since the start of the year. Currently the euro is roughly worth $1.18. 

The dollar has been weakening since the peak of the Covid-19 crisis

The revelation comes after months of dollar weakness. The bearishness has partly been attributed to the Fed's massive coronavirus stimulus programmes. 

Expansionary monetary and fiscal policy  tends to drive down bond yields, and lower interest rates. A lower interest rate makes saving in US dollars less attractive. 

While investors initially flocked to safe havens such as the dollar at the start of the coronavirus pandemic, this has dissipated in recent months. 

The Dollar Index has fallen 9% since March and as of Monday is trading at around 93.05. 

The dollar weakness is said to be another key reason why investors have piled into gold. A weaker dollar means they can purchase larger quantities of the precious metal more cheaply. 

Looking ahead traders and policymakers anticipate the policy rate to not change until earliest the end of 2021 and Bloomberg economists expect an uptick in inflation at the start of next year. 

Dollar weakness has caught market participants off guard across both sides of the Atlantic. 

Win Thin, global head of markets strategy at Brown Brothers Harriman warned last week "the stars are aligned against" the world's top reserve currency. 

Thin said US' handling of the coronavirus pandemic has had a drag on investor confidence in the dollar. 

"This is one of the rare occasions when Europe will actually outperform the US," the strategist said in a CNBC "Trading Nation" interview. "

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