The US dollar has been experiencing a period of steady selling, leading to notable shifts in currency pairs. USD/CHF reached its lowest point in ten years, while EUR/USD and GBP/USD both saw their highest levels since 2021 and October, respectively.
Other pairs, such as USD/CAD and USD/JPY, also hit their lowest levels since November and September. The DXY index saw its lowest since 2021, and gold reached an all-time high. At the beginning of the year, the US dollar was performing exceptionally well, hitting multi-year highs against several major currencies.
Rapid Transformation In Us Dollar Sentiment
The recent downturn has reversed many currency trends from the past 15 years. The risk-on/risk-off dynamic in trading has faced disruptions, illustrated by a 1% drop in S&P 500 futures. Meanwhile, NZD/USD increased by over 1%.
This situation marks a rapid transformation, contrasting sharply with a magazine cover from six months ago, which might now serve as a counter-indicator to the current trading environment.
In essence, what has taken place is a decisive turn in the sentiment surrounding the US dollar. A currency that started the year as the strongest among its peers is now facing consistent pressure, and those movements have fed directly through to assets that tend to respond quickly to shifts in dollar strength—like gold and high-beta currencies. Gold hitting record highs just as the DXY index touches lows not seen since 2021 tells us something clear: dollar supply is outweighing demand at the moment, whether that’s being driven by expectations on interest rates, positions being unwound, or a broader rethink on growth divergence.
The longer-term reversal suggests that we’re not simply witnessing a few sessions’ worth of volatility but rather a broader rebalancing. When we notice that EUR/USD and GBP/USD have climbed beyond levels last seen well over a year ago, the implication for us is that these are not random fluctuations. These kinds of levels are typically only reached when there’s a material shift either in dollar weakness or euro/sterling strength. In this case, it appears to be largely the former.
Powell’s recent commentary has played into this adjustment. Traders responded quickly to the possibility that the Federal Reserve is finished tightening—or closer to it than some had anticipated just a few weeks ago. If we look at longer-dated interest rate futures and swaps, they’ve moved to reflect lower rate expectations in the months ahead. That lower yield outlook has turned the tide on dollar holdings. Late longs are being shaken out as short-term rate differentials narrow. The dollar no longer pays the premium it once did.
Decoupling Of Traditional Market Relationships
For those of us looking at the derivatives market, particularly in FX and equity futures, this cooling in dollar strength alters how we should think about correlation and hedging. The long-standing relationships between equity risk appetite and dollar strength are breaking down. This decoupling—evident with S&P 500 futures falling while risk-sensitive currencies like the New Zealand dollar rally—calls for a fresh approach. The old rules aren’t working. You can no longer assume the dollar will rise when equities wobble.
One reason this change bears attention is that volatility pricing is now inconsistent with realised moves. That contradiction opens up arbitrage potential and re-pricing opportunities in option structures. VIX and implied vol in some currency crosses remain relatively muted despite large spot adjustments, especially in yen and Swiss franc pairs. These point to under-hedged books in some quarters.
Judging from how quickly sentiment has turned, and how far positioning had gone the other way earlier this year, it’s reasonable to expect further shakeouts. Weekly CFTC data have shown a high number of incremental long-dollar additions over the past few months, many of which are now underwater. With the slide accelerating, some of those trades are being forcibly closed. That process doesn’t tend to finish quietly.
The magazine cover reference isn’t just anecdotal. History has shown time and again that widespread narratives often meet their peak just before the opposite happens. It doesn’t mean sentiment alone drives reversal, but when narrative meets stretched positions—especially in a heavily crowded theme like dollar strength—the snapback can be rapid.
As everything becomes more directional, we’ve found clear preference emerging in implied volatilities. Skews in euro and sterling have steepened, showing that the demand for upside protection has outpaced downside coverage. That’s a clean sign that larger players aren’t yet reversing back—they’re protecting potential gains, not betting heavily in the other direction.
With all of this at play, it’s worth staying light on leverage, particularly through the next few sessions. We’re still seeing liquidity gaps during off hours, which can widen spreads and exaggerate price swings. The dollar’s move may be more of a repricing than a trend, but while that’s unknown, reduced size and tighter execution control could be the smarter intermediate response.
For now, it remains a trader-driven market. Economic data has taken a bit of a back seat, with positional adjustments leading. So, those of us relying purely on macro indicators might not be aligning with what’s moving the price. Until risk re-balances or dollar selling shows signs of fatigue, the momentum looks set to stay with those favoring other major currencies over the greenback.
