Dollar 'Fall Is Over' Says Expert As USD Has Been 'Unchanged' For 5 Months Amid Negative Consensus
News Summary
Despite a prevailing “Dollar negative” sentiment among market analysts, the U.S. Dollar Index has remained remarkably stable for the past five months, leading one prominent expert to declare, “the Dollar fall is over.” This assertion challenges the consensus view, which often overlooks periods of consolidation in favor of narrative-driven predictions. Robin Brooks, Senior Fellow at Brookings Institution, highlighted this overlooked stability, stating the dollar has been essentially unchanged for five months, which doesn’t fit the prevailing negative consensus. Michael Kao, a portfolio manager at Canyon Capital Advisors, further supported a strengthening dollar in the short term, observing UST yields and the USD spiking simultaneously due to an Appeals Court ruling regarding IEEPA Tariffs. Conversely, macro investor Otavio Costa pointed to a deeper, more structural shift challenging the dollar’s long-term dominance. He revealed that foreign central banks now hold more gold than US Treasuries for the first time since 1996, viewing this as “the beginning of one of the most significant global rebalancings in recent history.” The U.S. Dollar Index spot was 0.08% lower at the 98.3230 level, having declined by 9.39% on a year-to-date basis.
Background
The U.S. Dollar, as the world's primary reserve currency, has its value and stability continuously influenced by global economic conditions, geopolitical events, and national monetary policies. Since President Trump's re-election in 2024, his "America First" trade policies, including tariffs imposed under the International Emergency Economic Power Act (IEEPA), have consistently impacted global trade relations and currency flows. Market sentiment has long been divided on the dollar's future, with some analysts concerned that large U.S. fiscal deficits, inflationary pressures, and a global trend of "de-dollarization" could lead to long-term depreciation. Concurrently, the trend of central banks diversifying their reserve assets and increasing gold holdings has been ongoing for several years, reflecting a desire to mitigate risks associated with a single reserve currency, reaching a significant milestone in 2025.
In-Depth AI Insights
How might the Trump administration's trade policies simultaneously stabilize the dollar in the short term while accelerating its long-term de-dollarization trend? - The Trump administration's use of tools like IEEPA tariffs can, in the short term, create trade friction and uncertainty, prompting capital repatriation or increasing safe-haven demand for dollar-denominated assets, thereby supporting the dollar's exchange rate during specific periods. - However, these protectionist policies and potential trade wars also incentivize other nations to reduce their reliance on the dollar, developing alternative trade settlement mechanisms and reserve currencies. This, in turn, accelerates the long-term "de-dollarization" process, creating an inherent policy contradiction. Beyond simple reserve diversification, what deeper structural shifts are signaled by foreign central banks holding more gold than US Treasuries for the first time? - This is more than mere reserve diversification; it's a vote of no confidence in the current global financial system and dollar dominance. It reflects central banks' growing concerns over potential U.S. financial sanctions risks, the sustainability of U.S. government debt, and the long-term safety of the dollar as a reserve asset. - This shift represents a global power rebalancing, indicating that nations are actively pursuing monetary sovereignty and financial independence in response to geopolitical tensions and U.S. economic policy uncertainties, foreshadowing the accelerated emergence of a multi-polar reserve currency system. Given the complex scenario of short-term dollar stability coexisting with a long-term de-dollarization trend, how should investors adjust their asset allocation strategies? - Gold: The continuous accumulation of gold by central banks is a clear bullish signal. Gold's strategic value as a hedge against dollar depreciation and geopolitical risks is further highlighted, and investors should consider increasing or maintaining gold exposure. - U.S. Treasuries: In the short term, rising yields might attract some capital, but in the context of long-term de-dollarization, declining external demand could exert sustained upward pressure on yields, warranting caution regarding long-term holding risks. - Emerging Market Currencies & Assets: As de-dollarization progresses, some fundamentally sound emerging market currencies and assets linked to non-dollar trade settlement systems might receive structural support. - Global Diversification: Reduce over-reliance on a single currency or a single regional market by diversifying through a broader global asset allocation, focusing particularly on assets that benefit from a multi-polar world order.