Concerns over tariffs remain, and the bearish sentiment towards the dollar on Wall Street continues to be strong

Even though U.S. stocks rebounded strongly this week and recession fears have been temporarily set aside, Wall Street's bearish sentiment towards the dollar remains unchanged.

Strategists from JPMorgan and Deutsche Bank predict that the dollar will continue to weaken, with options traders' sentiment reaching its most pessimistic level in five years.

The market generally believes that U.S. policymaking remains unstable and unpredictable, leading to a decline in the currency's attractiveness. Although U.S. officials deny this, some investors still suspect that the Trump administration hopes to support the U.S. manufacturing base through a weaker dollar.

Kamakshya Trivedi, global head of currencies at Goldman Sachs Group Inc., stated:

"The exceptionalism of the United States is gradually fading, and this trend will continue."

So far this year, the dollar has fallen more than 6% against a basket of currencies. As of the time of writing, the dollar index stands at 100.81.

The Dollar's Weakness Continues, Wall Street Giants Are Bearish

This week, the S&P 500 index rose 4.5%, and inflation data was relatively mild. According to Bank of America, citing EPFR Global data, U.S. stock funds attracted about $19.8 billion in inflows for the week ending May 14, marking the first inflow in five weeks.

However, the dollar index still hovers near April's lows. Although the dollar rose 1% on Monday due to news of tariff relief, it lost most of its gains later in the week.

Peter Kinsella, head of foreign exchange strategy at Union Bancaire Privee Ubp SA, pointed out that the dollar's poor performance compared to the stock market "indicates that international investors fundamentally do not agree with Trump's theme of 'American exceptionalism'."

According to Valentin Marinov, head of G-10 foreign exchange strategy at Credit Agricole SA, the current market attitude towards the dollar has shifted to a "love-hate" complex relationship. Bets on the dollar's decline over the next year in the options market have reached their highest level since 2020.

These long-term options are typically used by fund managers rather than short-term speculators, further reinforcing the argument that the market is undergoing a broader reassessment of dollar exposure.

JPMorgan: The Reasons to Short the Dollar Remain Strong

Strategists from Wall Street giants like JPMorgan and Deutsche Bank predict that the dollar will continue to weaken, with options traders' sentiment reaching its most pessimistic level in five years.

JPMorgan's strategists believe that the reasons to short the dollar remain strong. A team including Meera Chandan wrote that the U.S. softening stance on tariffs will support economic growth in other parts of the world, thereby boosting their currencies.

Meanwhile, George Saravelos, global head of currency strategy at Deutsche Bank, noted that the inflow of funds into U.S. assets has slowed, and some countries have requested banks to re-evaluate their risk management agreements for U.S. investments All of this indicates a decrease in purchases of U.S. Treasury bonds—considered the safest investment in the world.

Saravelos stated, the most obvious sign would be the decoupling of U.S. Treasury yields from the dollar. This would involve a decline in the dollar against the yen, while U.S. Treasury yields rise, as Japan has traditionally been one of the largest investors in U.S. fixed income, and any slowdown in purchases will have an impact.

Mark Nash from Jupiter Asset Management believes that investors are looking for countries with excessive dollar holdings and then shorting the dollar against those countries' currencies. He identifies the Korean won and the Indonesian rupiah as two prominent examples. He stated:

"Asia is now at the forefront of the global capital return trend, investors are pulling capital back from the U.S."