Currency traders are scaling back their bets against the U.S. dollar on concern over global growth and the spread of the Eurozone contagion.

For the week ended Aug. 9, Commodity Futures Trading Commission data revealed that aggregate bets that the U.S. dollar will depreciate against the euro, yen, pound sterling, franc, Mexican peso, the Australian, Canadian and New Zealand dollars dropped by 154,105 contracts to 153,216, signaling that traders are betting the greenback will begin to strengthen, reports Allison Bennett for Bloomberg.

Hedge funds and other large speculators have lowered their wagers on a weaker dollar from the record high of 405,267 in March. Bets on an appreciating dollar are up while futures traders have cut their bets on further strength in the yen and franc.

“The sell-off in risk assets is due to the repricing of global growth,” remarked Ray Attrill, head of currency strategy at BNP Paribas SA. “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.”

“Our preferred strategy is to keep selling rallies in the euro, sterling, Australian and Canadian dollars against the greenback given our cautious view on the outlook for financial markets,” said Mansoor Mohi-uddin, chief currency strategist at UBS AG Singapore.

The Federal Reserve has promised to keep its target interest rate for overnight loans at record lows until mid-2013.

Yields on the benchmark 10-year Treasury notes hit a record low 2.0346% last Friday.

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