A Sentiment Shift Favors Dollar Bulls

By Jeff Weniger and Kevin Flanagan

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.