The Federal Reserve's key meeting this week may "light up its claws"! Hedge funds are bullish on the dollar for the first time since March

Sept. 18 (Reuters) - Hedge funds are bullish on the dollar for the first time since March amid growing speculation that Federal Reserve policymakers will maintain their hawkish leanings at this week's meeting. The number of net long dollar positions held by leveraged funds and other major players reached 18,000 contracts in the week ending Sept. 12, compared with 25,175 net short positions in the previous week, according to CFTC data.

Investors face a crucial monetary policy meeting this week, with hedge funds bullish on the dollar for the first time since March amid growing speculation that Federal Reserve policymakers will remain hawkish at this week's meeting.

Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that the number of net long dollar positions held by leveraged funds and other major players reached 18,000 contracts in the week ended September 12, compared with 25,175 net short positions in the previous week.

The shift was mainly due to the biggest drop in long euro positions since January, as traders bet that the European Central Bank was nearing the end of its rate hike cycle.

The European Central Bank raised interest rates by 25 basis points on Thursday, but hinted it might already be the last, with traders describing it as a "dovish hike". "The ECB raised interest rates by 25 basis points on Thursday, taking the deposit rate to 4 per cent, but it could be described as a dovish hike," said TD Securities' analyst team. "It is clear that their hike is over without the surprises and drivers of a possible rise in inflation."

"With U.S. economic data still relatively strong, we believe the dollar rally will continue," Win Thin, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a client note.

US retail sales rose 0.6 per cent month-on-month in August, beating expectations of a 0.2 per cent rise, driven by higher petrol prices, according to figures released on Thursday, the fifth straight month of growth.

The US producer price index rose 0.7 per cent month-on-month in August, beating expectations of a 0.4 per cent rise after Wednesday's report that consumer prices rose 0.6 per cent, the biggest gain in 14 months.

"We expect the Fed to take a hawkish stance this week, leaving the door open for further monetary tightening," said Mr. Thin. "On the other hand, almost every other major central bank meeting this week is expected to follow in the ECB's footsteps and signal a peak in interest rates."

Investors have become more bullish on the dollar over the past seven weeks, with their net dollar short position at the end of July the largest in more than two years.

The shift comes as a resilient U.S. economy raises the likelihood that Federal Reserve officials will stick to their forecasts for at least one more rate hike this year and cause traders to scale back their bets on a sharp rate cut by the Fed in 2024.

The Fed is widely expected to keep policy unchanged on Wednesday, with more focus on the so-called "dot plot" of interest rate guidance for the next few years.

Newton Investment Management Ltd. is one of the investors who have become bullish on the dollar in recent months. Trevor Holder, a fund manager at Newton Investment, said in an interview last week: "We are long the dollar because of the difference in growth."