US stocks' most money line/The dollar makes a comeback and momentum returns to US stocks
2025-08-01 17:06
Investors' conviction that U.S. President Donald Trump's tariff and debt binge would trigger prolonged pain for the dollar and Wall Street stocks is crumbling, foreshadowing pain for European and emerging market assets that had previously been buoyed by that view.
The dollar had its worst first-half performance since 1973, but is heading for its first monthly gain in 2025 amid the Federal Reserve's refusal to cut interest rates , unexpectedly strong U.S. economic data and easing trade war concerns.
"One of the biggest positions people have is being bearish on the dollar and the U.S.," said Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management, adding that a full-blown dollar recovery could stall the broader market trend through 2025.
As expectations of U.S. interest rate cuts fade, some investors say the Federal Reserve may support a recovery in the dollar to mitigate the impact of higher import costs due to tariffs on consumer price inflation.
Research from Bank of America shows that in mid-July, the most popular bet among global fund managers was that the US dollar would weaken. This $18 billion bet against the US dollar was the largest in the history of the foreign exchange market.
“There’s a rotation into U.S. equities, currencies and market momentum,” said Nizard, head of multi-asset at Edmond de Rothschild Asset Management.
He believes the framework of the trade agreement reached between Washington and Brussels is the main reason for this trend, but does not expect it to continue until the end of the year.
But Bettina Edmondston, portfolio manager at River Global, said a stronger dollar would help curb U.S. inflation, meaning a new so-called "Fed put" could open up opportunities for the dollar. "I don't think interest rates are going to go down, which intuitively makes you think the dollar should strengthen."
Mark Ellis, CIO of Nutshell Asset Management, said he's unsure whether the dollar and U.S. stocks will continue to rise in tandem in August, which is typically one of the most volatile months of the year. "This weekend is a good time to take some risk," he said. "Amidst the historic summer volatility and weakness, it's best to adopt a more cautious approach." (Financial News Group)