WisdomTree Minds on the Markets

WisdomTree

Minds on the Markets

WisdomTree

Minds on the Markets

Jeff Weniger, CFA Head of Equity Strategy

Read Jeff's Bio

Kevin Flanagan Head of Fixed Income Strategy

Read Kevin's Bio

Jeff Weniger, CFA: Head of Equity Strategy Read Jeff's Bio

Kevin Flanagan: Head of Fixed Income Strategy Read Kevin's Bio

A Sentiment Shift Favors Dollar Bulls

Week of June 23, 2025

It wasn’t too long ago that you could confidently proclaim that most of the Street was ebullient, maybe even wildly so, with respect to the greenback’s prospects. The market’s initial reaction to Donald Trump’s election victory was to reward “America First” beneficiaries, namely US stocks that are exposed to domestic manufacturing. Along those lines, the theory was that the Trump administration would usher in another bout of dollar strength, courtesy of the gravitational force of American exceptionalism.

For the most part, 2025’s action has thrown a wrench into those theses, specifically on the currency side. The day before Trump’s November 5 victory, the euro was changing hands at $1.088, the yen at ¥152.14. At various times in April, the yen was trading as strong as the ¥140-142 area, while the euro spent much of the last few weeks bopping around the $1.14-1.15 zone. In other words, they both strengthened a little bit in this year’s first half, but not by any order of magnitude that would stand out on any long-term chart.

But you wouldn’t know it from a look at Bank of America’s Fund Manager Survey. The June result revealed a shocker: the percentage of respondents who say they are overweight the dollar collapsed to levels last seen in January 2005. Back then, a dollar fetched ¥103.67. The dollar bears were wrong. They got walloped as the yen went on to weaken to ¥117.25 a year later. Similarly, the euro was notably strong back then, trading for $1.3033. The common currency also proceeded to weaken, to $1.216 by January 2006.

The thing about sentiment surveys is sometimes they flat-out don’t help much in the way of predicting these things. For example, the ZEW survey, which is critical for eurozone watchers, just registered its most bearish US dollar response since the question was first posed in 2012. Another contrarian long signal? Meh. Respondents were similarly bearish in January 2023. The euro ended up not really caring one way or the other; it closed that month at $1.086. A year later it was virtually unchanged at $1.082.

Still, the list of lopsided sentiment gauges is stacking up. For example, many currency watchers keep an eye on the Commodity Futures Trading Commission (CFTC) Commitments of Traders (COT) report. About a month ago, that report witnessed record highs in net JPY longs. Like the BofA and ZEW surveys, these look like contrarian signals.

Goldman has also been tracking dollar positioning since 2014. Though its readings a few weeks ago were more bearish than the current result, only in early 2018 did sentiment approach current levels. In that episode, the euro and yen bulls were wrong; the rest of the year was largely characterized by dollar strength.

The thing about sentiment extremes: they can always become more extreme. Also, they aren’t foolproof. But at the moment, a confluence of fund manager surveys and real money reports such as the COT are indicating that dollar bearishness has gotten over its proverbial skis. We are inclined to take the other side, if at least for a second half relief rally. Count us among the contrarians who like the dollar here.

For more information, contact your WisdomTree representative or visit WisdomTree.com/investments.

Please see the WisdomTree Glossary for definitions of terms and indexes.
Download as a PDF

Share this commentary:

Subscribe to this commentary:

Follow our new Minds on the Markets video series:

You may also like:

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund before investing. For a prospectus or, if available, the summary prospectus containing this and other important information about the Fund, call 866.909.9473 or visit WisdomTree.com/investments. Read the prospectus or, if available, the summary prospectus carefully before investing.

Past performance does not guarantee future results.

Important Risk Information:

There are risks associated with investing, including the possible loss of principal. Foreign investing involves currency, political and economic risk. Funds focusing on a single country and/or sector and/or funds that emphasize investments in smaller companies may experience greater price volatility. Emerging markets, real estate, currency, fixed income and alternative investments include additional risks. Please see the prospectus for a discussion of risks.

This material contains the opinions of the authors, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy or deemed to be an offer or sale of any investment product, and it should not be relied on as such. There is no guarantee that any strategies discussed will work under all market conditions. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein.

Kevin Flanagan and Jeff Weniger are Registered Representatives of Foreside Fund Services, LLC.

WisdomTree Funds are distributed by Foreside Fund Services, LLC.

Back to top