Wall Street Turns Gloomy on the Dollar as Haven Demand Fades

The easing in tensions has reignited the wariness toward the US currency that’s shaped conversations around it since President Donald Trump took office last year.

At Wells Fargo, strategists recommended buying the Swedish krona versus the dollar. Deutsche Bank advised selling a broad-based measure of the US currency, seeing scope for the euro to eventually eclipse $1.20 for the first time since January, from about $1.18 now. For their part, JPMorgan Chase & Co. strategists said that they re-entered short dollar bets.

Speculative foreign-exchange traders flipped to bet on the dollar early on in the conflict, growing increasingly bullish up until the ceasefire. In the week though April 14, they cut wagers linked to dollar rising to about $14.6 billion from $17.4 billion.

Fed Independence

Brooks at XTB lays out some of the challenges for the US currency, beyond expectations for the Fed to eventually cut rates while markets anticipate hikes elsewhere.

She points to potential worries about the Fed’s independence, with Trump’s threat this week to fire Chair Jerome Powell if he doesn’t leave that post “in time,” creating a possible scenario where the president appoints an ally as interim chair while nominee Kevin Warsh awaits confirmation.

“This could lead us back to the dollar debasement theme, which weighed heavily on the dollar last year,” Brooks said.

In the background, there’s also the view among some on Wall Street that Trump would like to see a weaker dollar to support US exports, although the administration has repeatedly avowed the long-standing US “strong dollar” policy.

Bearish Take

Amid the shift in market sentiment, asset managers have added to bearish dollar trades in the first couple of weeks of April, based on a Morgan Stanley model. A Bank of America Corp. survey from April 3 to April 9 — overlapping the start of the ceasefire — shows that the second-highest conviction trade among fund managers this year, behind owning bonds, was to short the dollar.

“Investors view the Iran war as more of a level shift to the dollar path for 2026 than a change in the trend,” BofA strategists including Ralf Preusser and Meghan Swiber wrote in a note this week.

The extent to which international investors strip out the currency risk from their US holdings — by using derivatives to bet against the dollar — is another potential trigger of greenback weakness.

Data from State Street, one of the world’s largest custodian banks, shows they’re piling into that protection, boosting hedging ratios on the US currency to 63% in the wake of the ceasefire announcement.

“Markets are almost treating it as if the conflict didn’t happen,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc.

What’s more, a resolution of the war, by reducing concerns about economies outside the US, may spur investors to buy more international assets.

“The drivers for the diversification trade are there underneath, but they are just overshadowed by other worries right now,” Beata Manthey, head of European equity strategy at Citigroup, said on Bloomberg Television this week.

–With assistance from George Lei.

(Updates with prices at closing, adds positioning of traders starting from fourth paragraph)

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