The world's reserve currency, the dollar, is currently below its post-election peak prior to Trump's inauguration. This is amidst a risk situation that has also led to a rise in stock prices and Treasury bond yields. Last week, the risk of betting against the dollar in this context was evident.
President Trump has once again heightened tariff threats, resulting in a growing number of investors betting against the dollar. These investors are concerned about the potential weakness of the U.S. economy due to these actions and signs of economic cooling. On the other hand, the Mexican peso has seen a slight recovery at the start of this week, trading at 20.47 units per dollar in Asian markets.
Several asset managers, such as Invesco and Columbia Threadneedle, as well as the hedge fund Mount Lucas Management, are included in the growing group of investors betting against the dollar. The supposed strength of the U.S. economy is weakening as investors reflect on Trump's policies and situations such as the breakdown of the agreement between Russia and Ukraine.
There is speculation that uncertainty regarding tariffs could further undermine an economy that is already showing signs of slowing down. This has intensified market expectations that the Federal Reserve will cut interest rates, diminishing the dollar's appeal. Despite certain events that led to some rises in the dollar, such as tariffs on Mexico and Canada, concerns about the economic impact of Trump's actions persist.
On the other hand, organizations like Morgan Stanley have warned about a possible downward trend in the dollar, and SocGen is alerting its clients about a long position in the U.S. currency that may not be sustainable. The narrative around the dollar, according to these analysts, is becoming increasingly uncertain and complex. Trump's stance on tariffs and other aspects of his administration has raised concerns in international financial markets.
Finally, the meeting of European leaders to discuss defense and security spending in Ukraine has contributed to a strengthening of the euro against the dollar in the early Asian trading sessions of the week. Despite the uncertainty surrounding the dollar, it is expected that European defense and regional decisions could have an impact on currencies against the dollar in the near future.
