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The dollar bulls are back with a bang

Currency speculators have ramped up bets on the dollar strengthening against other currencies to their highest level in two months, the latest sign of bullish sentiment towards the U.S. currency making a comeback.

(Read more: Will yen bears finally be rewarded for their patience)

The value of the dollar's net long position rose to $17.10 billion in the week ending November 19, up from $14.46 billion the previous week and the highest since the week ending September 10, data released from the Commodity Futures Trading Commission late on Friday showed.

According to Kathy Lien, managing director at BK asset management in New York, speculators hold the largest amount of long-dollar, short- yen positions in six years.

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Expectations for an unwinding of U.S. monetary stimulus in the next few months have renewed interest in the dollar after the currency fell in October. And the dollar's firm break above 100 yen last week has encouraged dollar bulls.

(Read more: Stocks enter holiday season with a tailwind)

The greenback rose more than 0.5 percent on Monday to about 101.89 yen on Monday, its highest level in six months.

"We are on the back of a bullish U.S. dollar environment with this taper talk at the moment," Jeffrey Halley, senior manager of currency trading at Saxo Capital Markets, told CNBC Asia's "Squawk Box" on Monday.

Three-month dollar/yen chart

"We have cracked some serious levels now on dollar/yen," he said. "I do think dollar/yen will progress to 105 but it wouldn't surprise me, given the extended positioning on the futures market, if we see a correction back to 100 before that happens."

The yen is one of this year's worst performing currencies against the dollar, with its year-to-date losses at about 18 percent. That's just after the Indonesian rupiah, which has slid just over 20 percent against the greenback.

Lasanka Perera, managing director at Global FX Partners, told CNBC the dollar could strengthen to 105 yen within the next four weeks, with the outlook for Japanese monetary policy another reason to expect dollar strength and yen weakness.

"The yen is firmly on the accommodative side. With the deceleration in GDP, we may see them [Japan's policymakers] talking about adding to their 70 trillion yen ($688 billion) per annum stimulus," he said.

(Read more: Japan's economic growth slows in Q3)

Data released earlier this month showed Japan's economy expanded 0.5 percent in the third quarter of the year from the previous quarter, compared with a 0.9 percent rise in the second quarter.

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter

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