The "dollar depreciation trade" has largely run its course, according to analysts at Yardeni Research.
They believe recent market movements no longer support the idea that investors are abandoning US assets.
The report notes that concerns about tariffs, Federal Reserve independence, and a widening budget deficit have subsided. Traders are now pricing in two US rate hikes by early 2027, after Fed Chairman Kevin Warsh reaffirmed his commitment to price stability.
Currency markets are also moving counter to the dollar depreciation narrative. The US dollar index has strengthened since the last Fed meeting, despite the European Central Bank and the Bank of Japan both raising interest rates.
The euro has weakened in recent sessions, and the yen has fallen to levels not seen since 1986. This suggests that monetary policy tightening abroad has not led to a strengthening of foreign currencies against the dollar.
Gold and Bitcoin also retreated. Gold came under pressure from a stronger dollar and rising real interest rates, leading to a cut in the year-end gold price forecast from $5,500 to $5,000 per ounce.
Bitcoin fell from above $120,000 at the end of last year to around $61,000, supporting the view that it has not yet become a significant alternative to the US dollar.
Commodity markets also point to easing inflation concerns. Brent crude oil prices fell sharply following the opening of the Strait of Hormuz, erasing a significant portion of the geopolitical risk premium. Copper, however, remained supported by demand linked to artificial intelligence developments.
The bond market also failed to confirm the bearish thesis on the dollar. US 10-year Treasury yields remained mostly sideways, while lower oil prices helped contain inflation expectations.
Capital flows continue to flow to the US. Data from Treasury International Capital showed that net private inflows for the 12 months through April totaled approximately $1.3 trillion, indicating that foreign investors are continuing to increase, rather than decrease, their holdings of US securities.