Is the Dollar Rally Just a Blip? Hedge Fund Watcher: The Multiyear Dollar Bear Market Has Just Begun!

TradingKey — Following the U.S.-China tariff agreement reached in Geneva, the U.S. Dollar Index (DXY) saw a sharp rebound, only to experience its biggest drop in a month shortly after. Although the easing of trade tensions has somewhat calmed bearish sentiment toward the dollar, analysts warn that confidence in the greenback has already suffered irreversible damage — and a weaker dollar is still on the horizon.

Jens Nordvig, founder of Exante Data, said the recent dollar rebound driven by the de-escalation of U.S.-China trade tensions was little more than a blip.

On May 12, the day the joint U.S.-China statement from Geneva was released, the Dollar Index surged 1.44% to 101.79. But it fell 0.77% the very next day.

Nordvig believes the dollar bear market has only just begun. He argues that the Trump administration’s chaotic efforts to reshape the U.S. economy — and its disruption of global trade along the way — have exacerbated the trend.

Traders noted that hedge funds reduced their short-dollar positions following the announcement of the tariff reduction between China and the U.S. However, neither the spot nor options markets have shown any signs of new bullish demand for the dollar.

Deutsche Bank analysts said that while U.S. policy is gradually shifting toward a more moderate direction, real money and central banks remain cautious about the “concentration risk” in dollar-denominated assets.

JPMorgan Chase pointed out that the fundamental reasons for being bearish on the dollar remain intact, even if the easing of trade tensions has slightly weakened that bearish stance.

Some bank analysts believe that concerns over the outlook for U.S. hard economic data, combined with potential shifts in asset allocation, will continue to weigh on the dollar in the medium to long term.