- Deutsche Bank, Wells Fargo, and Morgan Stanley are recommending bearish dollar positions as ceasefire optimism unwinds war-driven haven demand — the Bloomberg Dollar Spot Index has given back most of its war-related gains
- Dollar hedging ratios among global investors hit a two-year high of 63% following the April 7 ceasefire announcement, per State Street — investors are actively stripping currency risk from U.S. holdings
- Bank of America’s fund manager survey shows the second-highest conviction trade of 2026 is shorting the dollar — behind only owning bonds — with BofA strategists calling the Iran war “a level shift, not a trend change” for the dollar’s path
- A new risk: Trump’s threat to fire Fed Chair Powell — and appoint a compliant interim replacement — is reviving “dollar debasement” fears that weighed on the currency for most of 2025
What Happened?
The dollar’s war-driven haven rally is fading fast. The Bloomberg Dollar Spot Index surged in March as the Iran conflict roiled global markets, but has since surrendered most of that advance — down about 1.4% since the April 7 ceasefire — and is nearly back to pre-war levels. Deutsche Bank is now recommending selling a broad dollar basket, seeing scope for the euro to climb above $1.20 from current levels around $1.18. Wells Fargo is recommending buying the Swedish krona versus the dollar. Morgan Stanley models show asset managers adding to bearish dollar trades in early April. State Street data shows global investors boosted dollar hedging ratios to 63% — a two-year high — in the wake of the ceasefire announcement. Risk-sensitive currencies from Scandinavia, New Zealand, and Australia are up roughly 3% versus the dollar since April 7, while the S&P 500 has hit record highs.
Why It Matters?
The dollar’s post-ceasefire weakness reflects a return to the structural headwinds that drove an 8% decline in 2025 — the worst annual performance since 2017. Those headwinds include expected Fed rate cuts, the relative attractiveness of non-U.S. assets as geopolitical risk fades, and growing investor wariness about U.S. policy predictability. Trump’s threat to fire Fed Chair Powell if he doesn’t leave “in time” — and the prospect of an interim politically compliant replacement — is adding a new dimension: dollar debasement risk. A Fed stripped of credible independence would likely accelerate dollar weakness well beyond what ceasefire optimism alone would produce. Meanwhile, the structural diversification trade — global investors reducing their overweight in U.S. assets — remains a powerful undercurrent that the war had temporarily overshadowed.
What’s Next?
The key risk to the bearish dollar call is a breakdown in Iran talks. If the ceasefire collapses, oil spikes, and safe-haven demand returns, the dollar could rapidly retrace its losses. Citigroup’s currency desk made exactly that argument Thursday, recommending clients position for dollar strength given still-elevated commodity prices and the fragility of the ceasefire. The dollar’s path through the summer will be determined by two factors above all: whether a U.S.-Iran deal materializes and permanently reduces the geopolitical risk premium, and whether Trump follows through on Fed independence threats that would reignite 2025’s debasement narrative. Both are live risks — in opposite directions.
Source: Bloomberg
