Traders Stay Bearish on U.S. Dollar Despite Its Current Strength

Even as the U.S. dollar continues to hold firm against major peers, global FX strategists are doubling down on bearish long-term positions, betting that the greenback’s resilience won’t last once global risk sentiment stabilizes and rate cuts come back into view.

Short Term Strength, Long Term Skepticism

The dollar’s near-term support has come from higher Treasury yields and safe-haven demand, following renewed volatility in global equities. However, most institutional forecasts suggest that the current rally is “running on fumes.”

A majority of analysts surveyed by Reuters expect the dollar to weaken into early 2026 as growth outside the U.S. rebounds and other central banks begin easing more cautiously than the Fed.

“The U.S. is still the cleanest shirt in a dirty laundry basket but that’s not the same as being strong,” said one London-based currency strategist.

Global Positioning: Risk Trades on Pause

In Asia and Europe, traders remain reluctant to chase the dollar higher.

The euro and pound have stabilized, while emerging market currencies like the Mexican peso and Brazilian real have shown signs of bottoming after weeks of pressure.

Carry trade flows are flattening, with funds reducing leveraged dollar longs amid signs that the Fed’s policy divergence may narrow.

What’s Driving Sentiment

• Fed narrative fatigue: Markets have priced in a “higher for longer” stance, but without fresh catalysts, momentum is fading.

• Global growth resilience: Recent data out of Europe and Asia surprised to the upside, undercutting the dollar’s safe haven bid.

• Position squeeze: Hedge funds and systematic traders have been forced to trim bullish exposure after volatility spikes.

Despite its current dominance, the dollar’s leadership looks temporary.

The narrative is shifting from “King Dollar” to “Tired King” still powerful, but vulnerable if global risk appetite returns. Traders aren’t betting on collapse just correction.