The dollar is struggling, and strategists overwhelmingly agree it’s heading even lower. But with such strong consensus on a negative outlook, any positive news on the greenback could deliver an unexpected—and much harder—blow.
For investors, it’s a risk worth considering now.
The U.S. Dollar Index, which measures the value of the dollar against a basket of foreign currencies, fell as low as 0.45% during Thursday’s trading before recovering. The WSJ Dollar Index, a similar but newer index, fell to lows last seen in summer 2023 during the session, but finished at 95.21, a level that isn’t particularly significant.
That bodes well for Wall Street’s big banks, who’ve been increasingly predicting a dollar rout. On Thursday, Deutsche Bank’s macro strategist Tim Baker said the proposal for new levies on foreign investment adds to the firm’s bearish view on the dollar. Bank of America’s foreign-exchange strategist Alex Cohen referred to his team as “core dollar bears.” Morgan Stanley’s Matthew Hornbach expects the dollar to slide in 2025 and some part of 2026.
That’s not all. JPMorgan Chase, Goldman Sachs, and Société Générale strategists are others part of this near-consensus view on the greenback.
It’s important to note that Wall Street isn’t predicting an all-out demise for the U.S. dollar: The currency is entrenched within global financial machinery, and any significant decoupling by foreigners selling U.S. assets could take years. However, big money managers, hedge funds, and other institutions who’ve been holding lots of dollars by overweighting U.S. stocks or other dollar-denominated assets are rethinking exposure under a new, fast-paced regime in Washington, D.C.
President Donald Trump’s tariffs also imply fewer dollars in the hands of other countries as they sell less goods in the U.S. That, in turn, will reduces foreign nations’ ability to buy as many U.S. assets. Also, the dollar’s usual role as a safe haven and a buffer against market swings is being questioned: The greenback is not reacting to moves in the S&P 500 and other major indexes as it once did.
But here’s the kicker: Even with many factors pointing to further dollar weakness, its not crazy to think that the dollar could go up—and that makes the groupthink on the dollar risky.
Economic data could give the dollar a much-needed boost. Initial jobless claims published on Thursday were higher than economists anticipated. However, the unemployment rate has remained rather steady at 4.2%, and inflation seems more or less in control; an improvement on the economic front can strengthen the dollar.
“While the longer-term USD outlook is still bearish, a move lower from here may require signs of cracks forming in the economic data,” wrote Kit Juckes, Chief FX Strategist at Société Générale on Monday.
Trump’s evolving tariff policy is another wild card. Trump said he had a “very good” phone call with Chinese President Xi Jinping on Thursday, which likely led to the dollar moderating its losses. It’s unclear where negotiations between the U.S. and Europe stand, Cohen pointed out in a note listing upside risks to his bearish call. However, most harsh rhetoric between the U.S. and foreign powers has been walked back soon enough, he wrote.
Goldman listed the comeback of U.S. exceptionalism talk as “the biggest risk to our forecast for further Dollar depreciation.” If Trump uses money from tariffs as fiscal support, that could eventually strengthen the dollar—and foreign investors may get drawn by even higher yields on bonds and cheaper equity valuations on stocks.
When pessimism is this strong, its wise to consider if the market could have other plans that could make a sudden rebound hurt badly.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.