COMMENT-Much has been said about the US dollar but very little has changed

Much has been said about the U.S. dollar coming under scrutiny after a surprising slide in a risk‑averse environment, but little has actually changed. Its modest decline during the U.S. trade conflict is more likely to be followed by a rebound than a further fall.

There is little evidence of a "Sell America" trade: U.S. stocks are booming, bonds have been remarkably stable, and there are no signs of a flight from the dollar. FX reserves for countries that might have been expected to pare dollar holdings because of the trade dispute have been growing.

While the substantial increase in FX reserves for Brazil, Russia, China, India, and South Africa may reflect gains in gold, the euro, or the Swiss franc, all of these countries' reserves have risen since January 2025. That would be unlikely if they had chosen to sell dollars, which still comprise the bulk of global reserves (about 57%).

Although the dollar fell during the trade conflict, it had reached a near two‑decade peak around 134.74 when the dispute began. After that big run‑up, the rally became stretched, exceeding the top of the 20‑month Bollinger Bands. The subsequent pullback looks more like a standard reset of overbought conditions than the start of a deeper decline, and it has sparked outsized speculation on further weakness—such as a surge in euro‑bullish wagers that, at almost $27 billion, are the second‑largest on record.

In January 2025, speculators had more than $35 billion in bets that an overbought dollar would keep rising. They are now wagering over $17 billion on a dollar slide that is edging toward oversold territory.

Without sellers beyond speculators - and potentially facing central banks that appear to be buying or at least holding dollars - the deeper decline traders hope for looks less likely than a reversal that their own short positions could trigger.