One of the year's most popular trades is losing steam in a hurry as the currency landscape suddenly looks a lot different.
Currency hedging had been the hottest thing going, with exchange-traded funds focusing on expected developments around the world attracting billions in investor cash.
But as dynamics change, the anticipation that the U.S. dollar would continue to strengthen against its global peers is in doubt, and so are the accompanying trade positions.
For instance, the euro has lost as much as 13 percent against the dollar in 2015 as forex traders bet that the European Central Bank would be easing its monetary policy as the Federal Reserve was taking actions to strengthen the greenback.
After hitting the year's low in mid-March, however, the direction has changed. The euro has jumped about 12.5 percent since and is down just 5.8 percent year to date.
A similar trend has happened in the dollar-yen trade, though in even choppier fashion.
The dollar surged more than 8 percent from the mid-January trough to the early June peak. That has reversed this summer, falling nearly 5 percent.
ETF users, however, had been betting heavily that the strong dollar and weakening international currencies play would stand.
For instance, the WisdomTree Europe Hedged Equity fund, which counts on a weak euro, has attracted $15.7 billion in investor money, according to FactSet and ETF.com. While the fund is up 1.3 percent for the year, it has lost 11.6 percent over the past month.
The Deutsche X-trackers MSCI EAFE Currency-Hedged Equity ETF, which plays developed market equities excluding the U.S. and Canada and hedges the dollar, has pulled in nearly $13.1 billion in assets. But it is down 2.2 percent for the year and nearly 10 percent over the past month.
Finally, the fund has pulled in just shy of $5 billion but also is struggling. It is up nearly 1 percent for the year but has tumbled 12.2 percent in the past month.
The change in direction has come as traders recalibrate their expectations for Fed monetary policy. At one point anticipation was that the central bank would begin to raise interest rates for the first time in nine years as early as March.
However, a global economic slowdown and a declining equity market at home have pushed out expectations, off 2015 entirely and into January 2016 for the first rate move, according to at least one calculation.
That makes for a "naturally overcrowded trade," said Michael Pento of Pento Portfolio Strategies, who believes the Fed won't raise rates and ultimately will have to ease policy and begin another round of quantitative easing.
If that happens, it would mean weakness for the dollar and a different environment for currency hedging.