Dollar Bulls Retreat Amid Risk Aversion Decline and Rising Rate Cut Expectations

On April 22, as expectations for easing tensions in the Middle East increased, the dollar’s safe-haven appeal significantly weakened. Coupled with a return of market bets on the Federal Reserve cutting rates within the year, global funds are rapidly withdrawing from dollar assets. Data shows that the dollar index has fallen about 2.3% from its peak at the end of March, marking the worst monthly performance since August of last year. Wall Street institutions generally believe that the current dollar weakness is driven by a dual force of ‘diminishing risk premium and shifting policy expectations.’ JPMorgan has resumed its strategy of shorting the dollar, turning bullish on risk currencies like the Australian dollar; Bank of New York Mellon also pointed out that emerging market currencies have rebounded across the board, reflecting a clear increase in global risk appetite. Meanwhile, expectations for Fed rate cuts continue to rise, with funds flowing back into high-yield and carry trade assets. Currencies previously under pressure, such as the euro, South Korean won, and South African rand, have significantly rebounded, with some appreciating over 2%. Institutions further noted that the easing of Middle Eastern conflicts is merely a short-term catalyst; in the long run, rising uncertainty in U.S. policy and a global trend of reducing U.S. asset holdings may continue to exert pressure on the dollar. Mainstream investment banks predict that the euro could rise to 1.20 against the dollar in the next year, and the dollar’s weak trend may persist.