US Dollar Set for Another Decline: What It Means for Investors and Businesses in Oman
NEW YORK — The US dollar has stabilized after a record decline earlier this year, yet many currency market participants continue to regard the greenback as entrenched in a bearish trend, preparing for further depreciation.
The dollar index experienced an 11% drop over the six months ending in June, marking one of its steepest falls on record. Though the currency has steadied recently, propelled by a significant reduction in bearish futures positions, speculative net short dollar positions stood at $5.7 billion last week—near the lowest since mid-April and down sharply from approximately $21 billion in late June, according to CFTC data.
Despite this pause in selling, investors largely view it as temporary rather than indicative of a trend reversal. Concerns persist over the twin US fiscal and trade deficits, the potential for a sluggish labor market to lead to more aggressive Federal Reserve rate cuts, and a reevaluation by global fund managers of their foreign exchange hedging strategies aimed at reducing exposure to the dollar.
Francesca Fornasari, head of currency solutions at Insight Investment, stated, “The dollar is in the process of declining, and there’s more to go. It’s messy and it’s probably going to be pretty noisy.”
The underlying drivers of the dollar’s decline remain: a reassessment of US economic exceptionalism, apprehensions about growth amid President Donald Trump’s protectionist trade policies, and ongoing twin-deficit worries. Soft employment figures give the Fed room to reduce rates more aggressively, weakening the dollar’s yield advantage.
Paresh Upadhyaya, director of fixed income and currency strategy at Amundi, Europe’s largest asset manager, commented, “Markets are beginning to weigh how much the US economy will weaken, the future labor market conditions, and their implications for Fed policy.” The Fed is expected to resume cutting short-term rates next week and continue easing through year-end.
Upadhyaya, bearish on the dollar since early this year and increasing his short dollar positions, sees little reason to change his stance.
Global investors face challenges due to years of US asset outperformance, leaving them heavily invested in American markets. Although April’s tariff-related market turbulence prompted some rebalancing, the process is ongoing. With foreign holdings of US assets reaching trillions, any notable reduction could exert downward pressure on the dollar.
“The next significant dollar drop could come if foreign investors begin trimming their US allocations,” Upadhyaya said.
The dollar’s weak first-half performance has already spurred increased hedging by asset managers. According to Fornasari, slower market participants might join in over the next three to six months. Hedging typically involves selling dollars through forwards or swaps, which increases supply and further pressures the currency. Lower US interest rates relative to foreign rates reduce hedging costs, making this strategy more attractive.
George Saravelos, Deutsche Bank’s Global Head of FX Research, noted, “Additional Fed cuts would heighten incentives for foreign investors to hedge dollar assets.”
Dollar supporters are unlikely to gain momentum from the Trump administration, as its “America First” policies and efforts to boost US manufacturing are generally adverse to a stronger greenback.
Thanos Bardas, managing director at Neuberger Berman, observed, “They still favor a strong dollar, but somewhat weaker than the very elevated levels seen at the beginning of the year.” He added, “It’s unrealistic to bring manufacturing back to the US with the dollar index at 110,” predicting the index will hover between 95 and 100 in the near term. The index was 97.72 on Wednesday.
Shaun Osborne, chief FX strategist at Scotiabank, said, “The US does not necessarily want to signal a preference for a weaker dollar, but it won’t obstruct it either.” Osborne anticipates the dollar could decline an additional 5% to 7% against major currencies over the next year.
There remains some possibility for the dollar to find support, given the extent of its decline and the degree of Fed easing already priced in by markets. Bardas noted one key risk to the bearish outlook is if US economic growth unexpectedly accelerates. The economy grew faster than initially estimated in Q2, driven by business investment in intellectual property such as artificial intelligence, though tariff impacts obscure the outlook.
Nonetheless, the dollar is still relatively expensive compared to many currencies, deterring potential buyers amid a foreign exchange market prone to extended periods of currency overshooting.
Upadhyaya concluded, “We are just reaching what I would consider neutral levels for the dollar, but it remains far from undervalued. There is more of the dollar bear market to come.”
— رویترز
تحلیل ویژه از عمانت | بازار عمان را کشف کنید
The sustained bearish trend of the US dollar, driven by fiscal deficits, potential Fed rate cuts, and global investor repositioning, signals opportunities for Omani businesses to diversify currency exposure and capitalize on weaker dollar-related trade advantages. However, smart investors should prepare for continued volatility and hedging complexities, focusing on strategic currency risk management to safeguard Omani assets amid global forex shifts. This environment also underscores the value of exploring non-dollar denominated investments and partnerships to mitigate downside risks.
