The dollar has surpassed the 2024 lows.
We started out with pricing in the drop in global trade. On “Liberation Day”, as the tariffs were announced, the DXY started to break lower.
It makes sense because much of the world’s trade is still priced in US Dollars. But, what’s interesting about this situation is that every time we’ve actually seen Global Trade Uncertainty, we’ve actually seen the US Dollar spike.
The basic idea was always that the USD is safe haven, and much of it was also accompanied by the flight to safety in US bonds (i.e., more demand for the USD).
This time things are different.
And, now that the selling has gotten started, it looks like markets are willing to sell more.
According to BofA’s latest Global Fund Manager Survey (FMS):
Net 61% expect the US dollar to depreciate over the next 12 months
This is the most bearish USD sentiment since May 2006
The USD Index (DXY) is now sporting a death cross, for those of you who like technical analysis. This could very well mean that the USD keeps going lower.
Aversion to US Assets
Part of it has to do with the erosion of demand for US assets. Not only have we been seeing a rotation away from US equities, but we’ve also seen some reduction in bonds.
BofA’s Hartnett notes on 10 April 2025 that foreigners sold $6.5B in US equities, and $3B in US Corporate Bonds. It’s quite likely that this will continue.
We refer again to the BofA’s Global FMS, which tells us:
Record number of global investors intending to cut US stocks
5th most bearish Fund Manager Survey in the past 25 years
4th highest recession expectations of the past 20 years
The US Administration has been focused on guarding the US Dollar as the world’s reserve currency. There was a lot of noise about cutting off the BRICS nations if they decided to pursue the idea of a separate currency to rival the USD.
From what it would seem, the US administration’s actions have had the opposite effect. Secretary Bessent recently said, “The Dollar is still a strong Global Currency”. I have to agree, but I’m not certain the market has much faith in the strength.
We’re seeing it in the flows as well. Systematic flows in US equities have fallen drastically, and we haven’t seen this trend reverse as yet. This needs to reverse before we can see some meaningful positive moves in the market.
Recession Worries
This also leads me to believe that the USD is signaling a lower level of rates in the US, i.e., it’s pricing in more rate cuts than expected because of a recession.