Institutional investors show bearish signs on the U.S. dollar

Data from the Commodity Futures Trading Commission as of May 27 indicated that institutional investors are increasingly bearish on the U.S. dollar. Asset managers’ net positions on the U.S. dollar are up to $47 billion, near the highest since December 2023.

Short exposure has doubled over the last 2 months as the U.S. dollar has accelerated, dropping by 9.5% year-to-date, resulting in its worst performance for this period in 30 years. The euro, the Swiss Franc, and the Japanese Yen have gained +10.1%, +10.3%, and +8.5% against the greenback this year.

Dollar depends on coming macroeconomic data

The dollar’s in trouble — rate cuts, weak US growth, and Trump’s chaotic trade/tax moves are dragging it down. Morgan Stanley sees DXY -9%, EUR at 1.25, JPY at 130. Goldman flags tax risks for foreign investors. Bias: Bearish USD | Bullish EUR, JPY, AUD. pic.twitter.com/VG0hVkda4b

— Andressa Mendes (@andressa_trader) June 2, 2025

The greenback came under pressure after data showed Americans filing new applications for unemployment benefits last week increased for a second straight week, suggesting softening labor market conditions. Jobless claims data, scheduled to be released on Friday, is expected to show around 130,000 new nonfarm payrolls, representing a lower figure than April’s 177,000 additions.

The unemployment rate is forecast to remain unchanged at 4.2%. Karl Schamotta, chief market strategist at Corpay, said evidence of a cooling labor market is beginning to build, lowering expectations ahead of tomorrow’s jobs report. 

On Thursday, BofA Global Research acknowledged its bearish stance on the U.S. dollar, noting that the view is becoming increasingly mainstream. The firm also mentioned several upside risks that could support the dollar in the short term despite expecting medium- to long-term weakness in the greenback.

“We remain bearish on the dollar but recognize this is becoming an increasingly consensus view, posing risks. Upside USD risks: ongoing U.S. data resilience, further cooling trade tensions, and Congress finding fiscal ‘sweet spot.’ We remain core dollar bears, but near-term upside risks cannot be ignored.”

-Band of America Global Research and Market Insights.

The bank argued that the ongoing resilience in U.S. economic data remains a key risk to its outlook, even if the trend proves temporary. BofA also noted that the longer-term effects of escalating trade tensions would likely weigh on the dollar over time. The financial institution also believes that any short-term gains in the greenback should be seen as selling opportunities, barring major policy and economic shifts.

Dollar drops after ECB hints at rate pause

📈📉DAILY MARKET VIDEO📈📉

🇪🇺 The ECB cut rates by 25bps as expected, lowering GDP and inflation forecasts in the process

👷 #NFP downside risks remain despite low expectations

🐂 $EURUSD is holding a bullish structure near 1.1430 resistance pic.twitter.com/4lMtD2YhwA

— Matt Weller CFA, CMT (@MWellerFX) June 5, 2025

The dollar slipped against the euro on Thursday after the European Central Bank hinted at a pause in easing interest rates after cutting rates by 25 basis points as expected. The bank cut interest rates for the eighth time in a year on June 5, noting that inflation was under control and turning more positive amid a trade war with the U.S.

Though EB didn’t confirm the pause, it said it was now well-positioned to cope with global economic uncertainty. The financial institution believes that the current interest rate level is bringing the economy to the end of a monetary policy cycle responding to compounded shocks, including COVID-19, the war in Ukraine, and the energy crisis.

The euro climbed 0.5% to $1.1473, a new six-week high against the dollar, not far from the more than 3-year high of $1.1573 touched in April. Shaun Osborne, chief currency strategist at Scotiabank, acknowledged that the euro-dollar has taken off in response to Lagarde saying the ECB is approaching the end of its rate-cutting cycle. Osborne also believes it reflects the broader dollar sentiment’s softening and may continue into non-farm payrolls tomorrow.

Concerns still loom among investors about U.S. trade negotiations and the lack of progress in hashing out deals ahead of an early July deadline. China’s state news agency Xinhua reported that U.S. President Donald Trump held talks with Chinese President Xi Jinping on Thursday by phone, but a deal is yet to be finalized.

Global markets have been rattled since Trump announced a flurry of tariffs on countries worldwide on April 2, only to halt some and impose new ones, leading investors to look for alternatives to U.S. assets. The UK is the only nation to have struck a trade deal with the White House and was spared from higher U.S. steel and aluminum tariffs.

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