(The opinions expressed here are those of the author, a columnist for Reuters.)
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LONDON, Oct 2 (Reuters) - Struggling to make money in a world of ultra-low volatility, hedge funds are taking bigger - and riskier - gambles in foreign exchange markets.
Futures market positioning data from the Chicago Mercantile Exchange shows that speculators have amassed their biggest bets on a weaker dollar in nearly five years, and the biggest bet on a higher pound in almost two.
Both are vulnerable.
Hedge funds are doubling down on their view that the dollar will weaken just as expectations of higher U.S. interest rates surge, triggering a mini-revival for the currency.
The chorus of signalling towards another rate hike by the end of the year has been led by Federal Reserve chair Janet Yellen herself, and markets have reacted accordingly.
The 10-year Treasury yields had its biggest monthly rise of the year and the dollar its longest winning streak in over a year.
But in the week to Sept. 26, hedge funds upped their net short dollar positions against six major currencies by almost $4.5 billion to over $21 billion, the most since January 2013, according to the Commodity Futures Trading Commission.
Hedge funds have been net short dollars since the start of July, increasing that position every week bar one. But after hitting its lowest since January 2015 in the first week of September, the dollar has now risen for four weeks in a row.
The situation in sterling is different, but equally uncertain.
The last time hedge funds were net long of pounds was November 2015, and like today, it was a similarly small position of only a few thousand contracts.
It didn't last, as traders quickly built up bets that sterling would fall, culminating in a record short position of over 100,000 contracts earlier this year. The pound plunged, its decline accelerated by the Brexit referendum of June last year.
Yet the time previous to that when sterling positions flipped to net long in late 2013, the currency embarked on a 15 percent surge to levels not seen since February 2008, before the global financial crisis.
It's unclear which way the pound will go now. The CFTC net long position is only 5,054 contracts, so relatively small.
Propelled by the Bank of England's strongest hint to date that UK rates will go up in the "coming months", the pound jumped nearly 5 percent in September, its third biggest monthly rise in over 30 years.
What is clear as the fourth quarter gets under way is hedge funds have had a pretty dismal year so far. Macro hedge funds, which take directional bets on interest rates and currencies, were up less than 1 percent January-August, according to hedge fund data and analysis provider HFR.
Realistically, they have until the end of November to boost returns as best they can before they start to wind down activity for the year. They'll be hoping their dollar and sterling bets come good.
(Reporting by Jamie McGeever; editing by John Stonestreet)