The Dollar Index is still rated as “overvalued” even though it has fallen 10% since the start of the year. Analysts note that technical indicators and seasonal data trends indicate that this decline may continue, so another 10% decline could open the door to post-2020 lows.
📌 Dollar Index Retains “Overvalued” Status
The US Dollar Index (DXY), which has lost nearly 10% since the start of 2025, fell to a three-year low after testing lows in April. This milestone marks one of the most aggressive trend reversals of the year among investors. Many Wall Street analysts and institutions such as Ned Davis Research emphasize that the dollar is still “overvalued,” raising the scenario of a new 10% fall.
Momentum Loss Continues
Tim Hayes points out the weakening of momentum that appears in technical analysis tools. In particular, indicators such as RSI and MACD confirm the bearish momentum. Seasonally, it is a fact that in the second half of each administration, the first year of the US President, the dollar tends to weaken. Therefore, it is predicted that the dollar may remain under pressure again in June and July. US inflation data is also seen as another element that increases the selling pressure on the dollar.
Macro Data Supports Printing
The May—June data show that the slowdown in CPI and PPI has highlighted the Fed's expectations for rate cuts. These expectations add to the pressure on the dollar. At the same time, the fact that US 10-year bond yields are still attractive relative to other countries could set the stage for bottom patterns to form. However, recovery signals in major economies such as the Eurozone and Japan are causing capital flow to move away from the dollar.
Corporate Outflows Get Noticed
While hedge trading is on the rise in the Eurozone, it is worth noting that large institutional investors such as pension funds in Denmark are systematically reducing their dollar positions. Currency strategists say that the $37 billion outflow is just the beginning, arguing that investor behavior points to a longer-term dollar weakening. This could lead to serious questions about the role of the US Dollar as a reserve currency in the global market.
Political Developments Create Uncertainty
The “revenge tax” clause, which is being debated in the US House of Representatives, also raises uncertainties in the market about the future of the dollar. Passage of this law could negatively affect the inflow of capital into the United States, bringing an additional decline in the value of the dollar. On the other hand, the rejection or softening of said law in the Senate could cause investors to turn to the dollar again. Such political developments have the power to create short-term sharp fluctuations in the value of the dollar.
Foreign Trade Balance and Valuation
A weakening dollar could further increase the U.S. foreign trade deficit, which could push up costs in import-based industries, although this increases the price advantage of American companies in terms of global competition. Although purchasing power parity (PPP) data show that the dollar is approaching its “fair value,” this level still does not quite fit the criteria for cheapness. This can lead investors to consider low levels as an area of temporary support, not an opportunity.
Sensitivity at Bottom, Risk of Reverse Reaction Is High
Investor sentiment, on the other hand, remains close to historic lows. Ned Davis Research's daily index of investor sentiment is at its lowest levels since 2017. This suggests that market psychology is fragile and prone to reverse movements. If, along with technical indicators, the fundamentals remain negative, investors may exit more from the dollar; however, in the opposite scenario, sudden recoveries may also be possible.
🧠 Expert Review
In the short term, the dollar may remain bearish with technical weakness and seasonal pressure. The prospects for interest rate cuts in the medium term and global capital outflows support this trend, while in the long term PPP-based valuation and the direction of US domestic policies will be decisive. Each scenario mandates flexible but careful position management by the investor.
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🛑 Disclaimer
This content is created by Investment Desk AI and does not constitute investment advice. You should make your decisions based on your own research and expert advisors.
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