The Dollar’s Downward Spiral: All Signs Point to a Historic Decline—Will It Happen?
The greenback's grip is slipping. Every indicator—from Fed policy shifts to global de-dollarization—screams 'sell.' Yet Wall Street still clings to hopium.
Why the Dollar's on the Ropes
Central banks are dumping USD reserves faster than a hot potato. BRICS nations are rolling out gold-backed alternatives. Even crypto—once dismissed—is eating fiat's lunch with 24/7 settlement.
The Fed's Losing Battle
Rate cuts can't fix structural decay. The US debt-to-GDP ratio looks like a crypto leverage trade gone wrong. Meanwhile, Bitcoin's acting like the anti-dollar—up 150% since the last inflation print.
Bottom Line: The dollar's not dying—it's being actively buried. Smart money's already rotating into hard assets and decentralized alternatives. The only question left: How many pension funds will get caught holding the bag?
This dynamic is further muddied by the delayed effect in place for the collection of these duties at the border. It takes time to fully ramp up and operationalize this kind of surge in collections, and so actual tariffs collected are approximately half of the stated rate right now.
It’s evident that some FORM of a tariff strategy is in place. But assuming they will go back to the pre-election rate of 5% is unrealistic.
Putting this all together, it’s time to think about how this crosscurrent situates itself alongside currencies and the path of monetary policy. As we can see below, the dollar is now down 10.7% year to date, one of the largest-ever drawdowns for the first half of the year.
Mechanically, it makes sense for the dollar to be the primary exhaust valve for the impact of tariffs since it aggregates interest rate differentials and the path of monetary policy. Those are driven by inflation expectations, as well as cross-border capital flows.
The broad consensus is that these dynamics will continue to drive the dollar meaningfully lower and could become turbocharged once it becomes evident who will replace Jerome Powell as the chair of the Federal Reserve.
If the new chair is someone committed to the 300-basis point cuts Trump is touting — and if that person can convince the committee to follow them — the dollar is destined for further weakness.
This framework all makes fundamental sense. The issue: This is the consensus view in markets right now, as we head into summer doldrums that often test positioning as volatility compresses.
Looking at current CFTC data, dollar positioning is the most bearish it’s been in years:
So, despite fundamentals pointing toward meaningful dollar devaluation continuing, I have a feeling the thesis will be tested over the summer, given it being such a crowded trade.
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