The “trade centered on a weakening dollar” has largely run its course — that is the conclusion reached by analysts at Yardeni Research. In their view, recent movements in the markets no longer support the argument that investors are turning away from American assets.
The article notes that concerns over tariffs, the independence of the Federal Reserve system, and the widening fiscal deficit have eased. Traders are now pricing in two interest rate hikes in the United States by the start of 2027 — following assurances from Fed Chair Kevin Warsh that the commitment to price stability remains intact.
Currency markets are also moving in opposition to the narrative of a depreciating dollar. The U.S. dollar index has strengthened since the last Federal Reserve meeting, even though both the European Central Bank and the Bank of Japan have raised interest rates.
The euro has weakened in recent sessions, while the yen has dropped to levels not seen since 1986. This suggests that monetary tightening abroad has not led to foreign currencies gaining strength against the dollar.
Gold and Bitcoin have also retreated. Gold has come under pressure due to a stronger dollar and rising real interest rates, leading to a downward revision in the year-end gold price forecast — from $5,500 to $5,000 per ounce.
Bitcoin has fallen from above $120,000 at the end of last year to roughly $61,000, reinforcing the view that it has yet to become a meaningful alternative to the U.S. dollar.
Commodity markets also point to easing inflation fears. Brent crude oil has dropped sharply following the reopening of the Strait of Hormuz, which has wiped out a significant portion of the geopolitical risk premium. Copper, however, has retained support due to demand linked to the development of artificial intelligence.
The bond market has also failed to confirm the bearish thesis on the dollar. The yield on 10-year U.S. Treasury notes has largely stayed within a sideways range, while falling oil prices have helped keep inflation expectations in check.
Capital flows continue to be directed toward the United States. Data from the Treasury International Capital report showed that net private inflows over the 12 months through April totaled approximately $1.3 trillion, indicating that foreign investors are still expanding, not reducing, their holdings of American securities.
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