Bearish bets on US dollar may trigger its rebound

Investors holding long positions in the US dollar may see a long-awaited rebound in its price, potentially including near-term appreciation.

Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank Ltd., is confident that the greenback is poised for at least a short-term recovery. Large bearish positions, technical oversold conditions, and real US asset returns suggest the dollar may rebound soon.

The Relative Strength Indicator (RSI) for the Bloomberg Dollar Index fell to its lowest level since 2020. The nearly 10% decline in the US currency from its February high this year can be considered excessive. In July 2023, when the RSI dropped to a similar level, the dollar rose by approximately 7% in the subsequent months.

Net speculative short positions in the US dollar against 10 currencies in the dollar index surged to $40 billion last week, the highest since October 2024. This could signal an impending rebound.

Meanwhile, falling Treasury prices haven’t deterred reserve fund managers from adding to their US government‑bond holdings. Over the first two weeks of April, they added more than $10 billion to their positions, further supporting the dollar.