The US dollar appears to have stabilized in recent weeks after experiencing a record drop in the first half of the year. However, many investors believe this is only a temporary pause and that further losses in the dollar index (DXY) are on the horizon.
The dollar index fell by 11% in six months up to June, experiencing one of the sharpest declines in its history. Although there has been a decrease in short positions in recent weeks, analysts emphasize that the twin deficits (budget and trade), weakening labor market, and the possibility of aggressive interest rate cuts by the Fed could further drag the dollar down.
According to experts at Amundi and Deutsche Bank, global investors’ hedging strategies could also keep the dollar under pressure. If foreign funds holding trillions of dollars in US assets begin to shrink these positions, there is a possibility of a new 5-7% decline for the dollar.
Conversely, an unexpected economic growth surprise could partially support the dollar.
However, according to most analysts, the dollar is still overvalued and the long-term bear trend is not over.
