By Saqib Iqbal Ahmed
NEW YORK (Reuters) – Dollar bulls appear to be in hibernation after a sharp selloff in the greenback on U.S. growth concerns, but some investors think tariffs still have the power to support the U.S. currency.
The dollar is down about 5% from the January inauguration of U.S. President Donald Trump and at a four-month low, as U.S. trade tariff headlines have fed worries about U.S. growth. A German fiscal spending boost has also brightened the outlook for Europe, further straining the dollar as investors shift capital to economies viewed as having stronger growth potential.
In addition, on currency futures markets, investors have slashed net long dollar positions to $15.3 billion from a nine-year high of $35.2 billion in late January.
Investors selling the dollar are concerned about tariffs slowing the U.S. economy by raising costs for businesses and consumers, disrupting supply chains and reducing trade volume.
Still, some investors do not see it as a time to sell the buck.
“I do not think that the planets have aligned for a dollar bear market,” Paresh Upadhyaya, director of fixed-income and currency strategy at Amundi US, said.
The dollar could still reap gains while tariffs are fully implemented, analysts said, noting that tariffs can reduce demand for foreign currencies by raising the cost of importing foreign goods, prompting the dollar to strengthen.
Additionally, many factors that powered the U.S. dollar higher last year remain in place, Amundi’s Upadhyaya said.
While U.S. growth may show signs of slowing, it remains strong compared with other major economies, he said. The dollar also still boasts a relatively high yield. Despite its poor recent performance, investors still view the greenback as a safe haven during times of global turmoil.
“I still think the dollar is king,” Upadhyaya said.
Dollar bears have in the recent past been punished for betting against the buck prematurely. Over the last two years, the dollar index slumped about 5% from a near-term peak two times – October-December 2023 and April-September 2024. In both instances, the dollar recovered within months.
The dollar’s near 5% post-election rally notwithstanding, strategists remain skeptical that markets have fully priced in the potential upside that could accrue to the dollar from full-blown multi-country tariffs for an extended period of time.
“We’re in the camp of those expecting a relatively prolonged period of tariffs, especially with Europe being the target,” said Francesco Pesole, forex strategist at ING in London.
