"Not volatility, but devaluation": the market is waiting for the dollar to decline despite the rebound
The dollar does not look like a reliable defense against Donald Trump's unpredictable actions, DoubleLine Capital states
The dollar jumped 1% in two days, correcting after January's drawdown / Photo: Shutterstock.com
The dollar rose by a total of 1% in trading on January 30 and February 2, reversing after a sharp decline in the second half of last month. Despite the rapid recovery of the U.S. currency, many market participants warn about the risks of its weakening in the future.
Details
"This is not a volatility event. It's a currency devaluation," Bloomberg quoted Ahmad Saidali, head of Redwood Heritage Group, as commenting on the dollar's January decline. The U.S. currency no longer behaves as a protective asset, and the unpredictable policy of U.S. President Donald Trump and the huge U.S. budget deficit continue to put pressure on the rate, stated the head of DoubleLine Capital Jeffrey Gundlach.
Goldman Sachs, Manulife Investment Management and Eurizon SLJ Capital forecast further weakening of the dollar, while warning that the decline will be accompanied by high volatility, Bloomberg writes. "The recent spike in political uncertainty will be persistent enough to prevent the dollar from regaining lost ground," the agency quotes Goldman Sachs analysts as saying.
Initially, financial markets viewed Trump's selection of financier Kevin Warsh as his nominee to head the Fed as a hawkish signal: the dollar strengthened, gold prices collapsed and stock futures fell. "However, we don't think Warsh will prove to be as tough a hawk over time as markets apparently expect," Invesco investment strategists led by Brian Levitt wrote.
Despite all the information noise around Worsh's appointment, investor demand for assets to hedge against the risks of Trump weakening the unique position of the U.S. - "American exceptionalism" - is likely to continue, believe AMP Limited. This "suggests further dollar weakness and a likely continuation of the uptrend in gold and silver, despite the large-scale correction of recent days," said one of Australia's oldest financial firms.
Context
On January 30, the dollar rose 0.9%, making its strongest jump since Ma 2025. On Feb. 2, the dollar index is up 0.1% against a basket of six other major currencies, holding above the 97-point mark. According to CME Group calculations, traders after Warsh's nomination continue to see two 0.25 percentage point cuts in U.S. interest rates in 2026 as the most likely scenario.
This article was AI-translated and verified by a human editor
