Everyone Now Hates The Dollar—Is That The Ultimate Buy Signal?

Wall Street’s bearish stance on the U.S. dollar has hit levels not seen in two decades, with fund managers overwhelmingly underweight the greenback as concerns mount over America’s fiscal trajectory and Donald Trump's conflicting trade policies.

According to Bank of America’s June Global Fund Managers Survey, a net 37% of respondents said they are underweight the dollar—the most extreme underallocation since January 2005.

Bank of America’s chief investment strategist Michael Hartnett described the bearish sentiment as the "most extreme view" in this month's survey. Still, he warned that crowded trades often backfire.

"Biggest summer pain trade is long the buck," Hartnett said.

The U.S. dollar index — as closely tracked by the Invesco DB USD Index Bullish Fund ETF UUP — has fallen by 12% since Trump’s inauguration day on January 20, 2025.

Investors Are Less Pessimistic On Growth

Despite the weak dollar outlook, global economic optimism has risen among fund managers. Since Trump paused reciprocal tariffs for 90 days and signaled willingness for trade agreements with China, global recession fears have plunged.

Just two months ago, 42% of investors surveyed expected a recession in the next 12 months. That figure has now flipped, with 36% saying a recession is "unlikely."

Expectations for economic deterioration have dropped sharply, with only 46% forecasting a weaker global economy—down from a record-high 82% in April, marking the largest two-month swing since the 2024 election.

Conviction in a global economic "soft landing" rose to 66%, the highest since October 2024. In contrast, only 13% anticipate a "hard landing," a sharp drop from 49% in April.

Meanwhile, expectations for a scenario where growth remains resilient without any meaningful slowdown—dubbed "no landing"—are rising, up to 16% from just 3% two months ago.

Most investors believe the final tariff rate the U.S. will impose on imports will remain modest. Only 1% see it exceeding 30%, while 77% anticipate a rate under 15%. The weighted average expected tariff is 13%, easing fears of a trade war-style disruption.

About 59% of fund managers say the Trump’s Big Beautiful Bill won't boost GDP growth, while a third see it as supportive.

The deficit, already near 7% of GDP, is projected to worsen, with 81% forecasting a larger shortfall due to Senate provisions. Just 14% believe the bill will be self-financing.

“3 most contrarian trades based on Fund Manager Survey sentiment are long US dollar, short gold; long US, short EU stocks; long consumer, short banks,” Hartnett stated.

Could Dollar Bearishness Signal A Turning Point?

Back in January 2005, when the dollar pessimism hit another extreme, the greenback had just come off a painful 33% drawdown from its July 2001 peak.

That fueled the start of a bullish dollar trend, which lasted one year.

The U.S. dollar index surged 11% between January and July 2005, extending its rally to a 14% gain by mid-November. It ultimately ended the year with a 13% advance.

The historical parallel with 2005 is hard to ignore.

That year, bearish sentiment proved to be a powerful contrarian indicator, preceding a double-digit rebound in the greenback.

With positioning once again heavily skewed against the dollar, traders may want to revisit that playbook.

While structural issues like deficits and fiscal expansion loom large, near-term market pain could come from a sudden reversal higher in the U.S. currency.

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