By Vassilis Karamanis

(Bloomberg) — The dollar (DX=F) climbed to its strongest level in two months, and investors positioned for further gains, as traders focused on political risks abroad amid a lack of US data.

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The Bloomberg Dollar Spot Index headed for a fourth straight advance, its longest winning streak since July, and reached its highest since Aug. 5. The gauge has risen about 2.5% since touching a three-year low on Sept. 17, and options markets suggest the rebound still has room to run.

Data from the Depository Trust & Clearing Corporation show that demand for dollar-bullish structures has exceeded bearish ones every day this week, underscoring how quickly conviction has swung back in favor of the greenback.

The US government shutdown has effectively silenced one of the market’s key dollar-bearish narratives, a softening US labor market. Without fresh jobs figures, traders have little incentive to sell the currency.

At the same time, political risks in Japan and France have prompted a broad repositioning across the majors. Hedge funds were first to close short-dollar exposure, with real-money accounts now following, according to Europe-based traders. Interest for outright bullish exposure is also evident this week, they say.

So-called risk reversals, a barometer of market sentiment, now show significant bullish positioning across tenors, with one-month topside bets near their most expensive since April.

• NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

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