Dollar’s Decline: Is a Rebound on the Horizon? | FT Alphaville

Investor sentiment towards the U.S. Dollar is currently very negative, reaching levels not seen in over a decade. Some analysts are comparing the dollar’s current standing to that of a struggling sports team, suggesting widespread disapproval. This downturn is largely attributed to concerns surrounding unpredictable U.S. Policymaking.

Dollar’s Declining Popularity

Fund managers are exhibiting the most bearish stance on the dollar in more than ten years, according to recent data. The dollar has decreased in value by 1.3 percent this year against a basket of major currencies, including the euro and the pound. This follows a 9 percent drop in 2025, bringing the dollar close to a four-year low.

Did You Know? Almost half of the more than $2 trillion worth of US bank notes in issue are held by foreigners.

Data from the CFTC’s “Commitment of Traders” report and State Street further reinforce this negative outlook. Numerous banks, asset managers, and economic consultancies across Asia, Europe, and the U.S. Are reportedly expressing bearish views on the dollar’s future.

A Potential Reversal?

Despite the overwhelmingly negative sentiment, some observers suggest a potential turnaround for the dollar. While acknowledging the strong bearish position, they propose that the market may have become excessively negative, increasing the probability of a rebound.

Two Key Questions About the Dollar

Analysts differentiate between the dollar’s role as the dominant currency for global trade and finance, and its short-term strength or weakness against other currencies. Historically, the dollar has weakened during periods when its position as the global reserve currency has strengthened, and conversely, strengthened during times of perceived instability in the U.S. System.

Currently, skepticism about the dollar losing its global reserve status remains limited. Approximately 54 percent of all export invoices are still denominated in dollars. The dollar also dominates international finance, accounting for roughly 60 percent of international loans and deposits, and 70 percent of international bond issuance. Around 88 percent of all foreign exchange transactions involve the dollar.

Expert Insight: The sustained dominance of the dollar in global trade and finance, despite periods of perceived U.S. Instability, suggests a lack of viable alternatives and a deeply entrenched role for the currency in the international system.

Even with the Trump administration’s policies, the idea of a “multi-polar” reserve system appears unlikely at this time. However, predicting whether the dollar will continue to weaken remains uncertain.

Recent Economic and Political Factors

Over the past year, the U.S. Has seen discussions about “user fees” for foreign buyers of Treasuries, another substantial government budget fueled by debt, challenges to the Federal Reserve’s independence, reductions in government agencies, and instances of legal norms being disregarded. Despite these factors, the dollar has only fallen approximately 7 percent since the election of President Trump.

While extreme scenarios – such as the U.S. Invading Greenland or arresting the Federal Open Market Committee – could lead to a significant decline in the dollar’s value, a more realistic scenario for further weakening might involve a reversal of foreign inflows into U.S. Equities if the artificial intelligence trade were to falter.

Frequently Asked Questions

What is driving the negative sentiment towards the dollar?

Fund managers are taking a bearish stance on the dollar due to unpredictable U.S. Policymaking.

How much has the dollar declined in value recently?

The dollar is down 1.3 percent this year against a basket of peers, following a 9 percent drop in 2025.

What percentage of global foreign exchange transactions involve the dollar?

Approximately 88 percent of all foreign exchange transactions involve the dollar.

Will the current negative trend continue, or could the dollar experience a rebound?