HSBC: the dollar sell-off is turning into an anti-bubble - and it will burst

The prolonged dollar sell-off is increasingly beginning to resemble a bubble - and like all bubbles, it will eventually burst, warned Paul Mackel, an economist at HSBC, Britain's largest bank. In his opinion, the dollar will remain weak in the coming months, but the threat of further decline of the U.S. currency is exaggerated.

"Not so long ago, a strong dollar bubble was evident, but now the opposite is happening: a kind of anti-bubble," quoted McKell by Bloomberg. According to his words, the features characteristic of a market bubble are already showing up and this serves as a signal: the bottom in the dollar may be near.

"It's not ready to burst yet, but bubbles eventually burst," added the economist.

Traders seem to be fixated on the dollar's decline and tend to extrapolate this trend into the future. The weakness of the U.S. currency will continue in the coming months, but the arguments in favor of further decline have become "excessively one-sided," according to an HSBC analyst. The risks are no longer as great as they were in April, when US President Donald Trump first announced large-scale duties, McKell emphasized.

The market's return to classic logic - where the dollar moves in conjunction with U.S. government bond yields - could mean that the trend of dollar weakness is nearing completion. A similar correlation between equities and trejeris yields has also begun to emerge, HSBC noted. 

The scenario of a falling dollar is still possible - if political uncertainty in the U.S. intensifies again or the global economy picks up steam. While neither option is HSBC's base case, the risk is there, strategists warn. Potential catalysts include a change in Fed chief Jerome Powell or a rapid strengthening of the euro.

By taking overly careless positions against the dollar, market participants are underestimating the risks associated with trade policy, Wells Fargo strategist Arup Chatterjee warned. He said investors are betting on a weaker dollar and rising risk assets, counting on the Fed to help. However, this confidence may not materialize: inflation uncertainty prevents the U.S. Central Bank from easing monetary policy, Chatterjee said.

JPMorgan strategists led by Mira Chandan noted that some market indicators have become less bearish against the dollar - this may indicate a short-term stabilization of the main reserve currency after the drawdown. However, in the medium term, JPMorgan economists do not attach much importance to these signals. The bank still expects the dollar to weaken amid duties and general uncertainty in the economy, betting on the growth of the euro, yen and Swiss franc, reports Bloomberg.

The dollar has weakened against a basket of six other major currencies by nearly 10% since the start of 2025. That said, last week was the best week for the dollar since late February. It rose 0.9% as Trump's new tariff threats heightened fears that escalating trade conflicts would stoke inflation and slow a rally in risk asset markets.

In the course of trading on July 14, the dollar held its positions due to uncertainty, which weakened investors' attraction to riskier assets. At the end of last week, Trump promised to impose duties of 30% on goods from the European Union and Mexico, which increased trade tensions. In addition, investors have become more cautious ahead of the release of U.S. inflation data, which could show the impact of Trump's duties on the economy, reports Trading Economics.

This article was AI-translated and verified by a human editor