The Bloomberg Dollar Spot Index had its worst week in more than two years, falling 2.3 percent, marking the largest weekly drop in terms of closing since November 2022. This situation is due to traders showing some "resentment" towards American exceptionalism, creating expectations that Donald Trump’s trade policies will slow growth in the world's largest economy.
Speculative traders, including hedge funds and asset managers, have been decreasing their bets on the dollar for seven consecutive weeks, according to data from the Commodity Futures Trading Commission up to March 4. This bearish trend is the lowest since October, prior to the U.S. presidential elections.
The growing pessimism comes after the dollar experienced a strong rebound since last year’s elections, driven by relatively high interest rates and promises of tariffs. However, the uncertainty around tariffs - such as the taxes on Mexico and Canada that have been postponed by Trump until April - has affected the economic outlook for the U.S., while in Europe, especially Germany, spending plans have propelled the euro to its best week since 2009.
Currency strategists at JPMorgan, led by Meera Chandan, commented that they have taken a strategically short position in dollars for the first time in over a year due to the erosion of American exceptionalism and a recovery in Europe. This reflects a regime shift in the foreign exchange markets and in their investment portfolios.
Meanwhile, European currencies appreciated this week due to spending plans in the region. The Swedish krona led the G10 with a 7 percent increase against the dollar, followed by the euro with a 4.6 percent rise. The Canadian dollar, on the other hand, lagged due to tariff risks.
The dollar index fell 0.4 percent on Friday, March 7, reflecting a weakening labor market, but recovered some of its losses after comments from Federal Reserve Chairman Jerome Powell, who acknowledged greater uncertainty in the U.S. economic outlook, although he stated that there is no need to rush policy adjustments.
