US Dollar Weakness Points to a Renewed Structural Downtrend

The US dollar is experiencing a decisive loss of momentum, with recent price action reinforcing a broader structural breakdown that has been years in the making. What initially appeared as a correction is increasingly resembling the continuation of a multi-year bear trend. While short-term rebounds remain possible, the balance of risks continues to tilt toward further downside as macro, positioning, and political dynamics align against sustained dollar strength.

Macro Backdrop

The dollar’s latest sell-off has unfolded alongside a softening growth outlook and resilient inflation expectations. Despite elevated nominal rates, real yields have failed to rise meaningfully, undermining one of the dollar’s key supports. At the same time, markets are increasingly questioning how long the Federal Reserve can maintain a restrictive stance as growth momentum fades.

This shift is eroding the narrative of US growth exceptionalism that has underpinned dollar strength for much of the past decade.

Broad Market Signals

Dollar weakness is not isolated. It is showing up clearly across asset classes and major currency pairs. Precious metals have surged sharply, with gold breaking above the $5,000 mark and silver dramatically outperforming. The Japanese yen has reversed lower against USD/JPY from recent highs, while the Swiss franc, euro, and antipodean currencies have all strengthened meaningfully against the dollar.

Notably, the Australian and New Zealand dollars are leading gains, supported by both a weaker US dollar and improving domestic rate expectations, alongside strength in base metals.

Structural Breakdown and Positioning

From a longer-term perspective, the current move fits cleanly within a broader bearish framework. The dollar’s multi-year advance from the 2008 low peaked in 2022, followed by a failed recovery attempt into early 2025. The rebound from mid-2025 lows now appears corrective, with price breaking lower from that structure and threatening a move toward fresh cycle lows.

Positioning data reinforces this view. Net-long USD exposure has been steadily unwinding since 2014, driven by declining gross-long positions rather than crowded short positioning. Even as traders have moved net-short in recent weeks, sentiment has not reached extremes, suggesting room for further downside before exhaustion risks rise.

Politics and Policy Bias

Political dynamics add another layer of pressure. A weaker US dollar aligns with the current administration’s preferences, particularly if accompanied by a more dovish Federal Reserve outlook. With positioning not stretched and policy risks skewed toward easier conditions over time, rallies are increasingly viewed as corrective rather than trend-changing.

Technical Outlook: US Dollar Index

From a technical standpoint, bearish volatility has expanded, opening downside projections toward the low 90s on the US Dollar Index, with deeper targets possible if support gives way. However, there is significant support clustered near the mid-90s, including long-term retracement levels and prior cycle lows. This raises the risk of near-term two-way volatility.

Even so, any recovery is likely to be treated as a selling opportunity, with the broader trend favouring a sustained move lower once consolidation resolves.

Bottom Line

The US dollar’s decline is not a sudden development but the continuation of a long-evolving trend. Macro conditions, positioning, technical structure, and political incentives are increasingly aligned against durable dollar strength. While short-term bounces remain likely, the larger picture points toward further downside, with the coming weeks potentially decisive in confirming a deeper breakdown.