The US dollar faces a crisis of confidence! Wall Street strategists say its long-term trend is weak

According to Zhitong Finance APP, despite the US dollar recording its largest monthly gain in three years in July, Wall Street's foreign exchange strategists remain firmly bearish on the dollar, believing that its rebound momentum is difficult to sustain.

In July, the US dollar index (DXY), which measures the dollar's performance against a basket of major currencies, rose by 3.2%, ending a streak of several months of decline. This was also the strongest month since 2021. The market gradually adapted to the tariff policies of the Trump administration, while the robust GDP data for the second quarter reinforced the short-term trend of the dollar, reversing the double-digit decline seen before July.

However, foreign exchange market participants believe that the long-term trend for the dollar still points to weakness. Recently released weak employment data, questions about the independence of the Federal Reserve, and Trump's dismissal of the head of the Bureau of Labor Statistics, Erika McEntarfer, have collectively raised concerns about the reliability of US economic data.

Goldman Sachs' Chief Currency and Emerging Markets Strategist Kamakshya Trivedi admitted in a report: "Our dollar view was almost entirely wrong this week, but the significant revision of employment data should change the market's interpretation of the impact of tariffs." Data released last Friday showed that the non-farm payroll increases for May and June were revised down by a total of 258,000, far exceeding market expectations.

The next key date will be the non-farm payroll report on September 5. Trivedi pointed out that not only the data results themselves are worth paying attention to, but also the deviations in expectations and changes in data collection methods are even more important. With the initial response rate of surveys declining and layoffs at the Bureau of Labor Statistics, there is already heightened vigilance regarding the agency's data. Now, with Trump set to appoint a new director, who is widely seen as a loyal supporter, if the employment data released next month is too strong, it may raise concerns in the market about data manipulation.

Although a strong employment report may briefly boost the dollar before its release, investors' doubts about the credibility of the data are prompting them to reduce their dollar assets in the medium to long term.

Meanwhile, the recent resignation of Federal Reserve Governor Quarles has also attracted market attention. Trump has the opportunity to nominate again, and the market widely speculates that National Economic Council Director Hassett or former Federal Reserve Governor Warsh are potential candidates.

Citi's foreign exchange strategist Daniel Tobon stated: "Although this nomination may not necessarily be for the next Federal Reserve Chair, if Hassett or Warsh takes over, the market may quickly interpret it as the Federal Reserve leaning towards faster and larger rate cuts." He also noted that the market has not fully priced in the impact of Quarles' resignation and reiterated his bearish stance on the dollar, expecting the euro to rise to 1.20 against the dollar. The current exchange rate is 1 euro to 1.16 dollars.

Barclays' head of foreign exchange strategy Themistoklis Fiotakis also believes that Quarles' departure "opens a new window for short-term dollar weakness," but he does not expect excessive depreciation of the dollar within 2025.

Both Goldman Sachs and Barclays tend to be bullish on the yen against the dollar, believing that in the current uncertain environment, the yen's appeal as a safe-haven currency is stronger