Is The US Dollar Comeback Upon Us?

To investors,

America was built on the idea of risk-taking. Whether it was citizens pushing west in search of freedom on the frontier or modern self-directed investors allocating capital in financial markets, the United States has always been unique compared to the rest of the world when it comes to our risk appetite.

You can clearly see this in recent public equity data. Goldman Sachs shows US investors have nearly 4x higher exposure to stocks as a share of household assets. Other countries like Japan, UK, and China are very far behind.

That risk-taking from US investors has been a great decision in hindsight. US equities are destroying other geographies. Charlie Bilello shows “over the last 17 years, US stocks have gained 592% vs. 140% for International stocks and 93% for Emerging Markets.”

That type of outperformance is pure dominance. And there will always be people scared of investing at new all-time high prices, yet the data suggests that may be one of the best times to invest when you look out over 6 moths, 1 year, 2 years, 3 years, and 5 years.

But now there is a new fear that has everyone spooked — the decline of the US dollar. We have discussed in recent weeks how the US dollar is down more than 10% to start the year, which is the worst first half of a year in decades.

And Barchart points out it is “now or never” for the dollar index. The metric is now hitting the lower end of a rising band the currency has traded in for the last 15 years.

Maybe this isn’t as bearish as everyone wants you to believe though? One macro strategist on X, known as End Game Macro, has a non-consensus view on the current moment in time. They write:

“This chart may appear to signal a breakdown in the dollar, but in reality, it may be the staging ground for one of the most violent reversals in recent history. DXY is testing the lower bound of a multi-decade ascending channel, a level that has repeatedly marked inflection points since 2008. Every time we’ve touched this range, the dollar has launched higher. Yet what makes this moment unique is the timing: the Fed is on the cusp of rate cuts. While conventional wisdom sees easing as dollar negative, the structure of global finance often flips that logic. When the Fed cuts into a disinflationary or risk off backdrop, capital floods into the deepest collateral pools and that still means U.S. dollars and Treasuries. The rate cut becomes the trigger for a flight to dollar safety, not a flight from it.

That’s where the geopolitical trap springs shut. Powell’s refusal to cut thus far, despite softening labor markets and collapsing consumer sentiment may not be driven solely by domestic macro data. It could be a strategic delay, engineered to lure BRICS and non-aligned nations deeper into dedollarization efforts just as liquidity begins to fracture. These countries have repositioned in local currencies, gold, and bilateral trade pacts. But they’ve also left themselves highly exposed to a dollar squeeze, especially if USD liabilities remain in their corporate or sovereign debt structures. Once the Fed cuts, the ensuing surge in dollar demand (for collateral, safety, and relative yield) could catch them completely offsides, forcing them to scramble back into the very system they tried to exit.

This wouldn’t be the first time such a trap has been sprung. The dollar surged after 2019’s Fed cuts. It exploded higher during the March 2020 crisis. And in the 1997–98 Asian Financial Crisis, nations that tried to assert monetary independence were crushed by sudden dollar strength. History shows us that when global actors overestimate their insulation from dollar liquidity cycles, they suffer. Powell holding the line on rate cuts may be less about the domestic economy and more about setting the stage for a strategic snapback, one that reasserts dollar dominance precisely when the rest of the world thinks it’s fading.”

That is a fascinating way to look at the current situation. It definitely is non-consensus. The important question is whether this view is correct or not? No one knows for sure. But it doesn’t seem crazy to be optimistic or bullish right when it seems everyone else is fearful.

So stock allocations are exploding higher for American households. The stock market continues to push higher and higher as it outperforms other regions. And the US dollar, which everyone thinks will continue weakening forever, may be ready to reverse course and remind the world why dollars are the global reserve currency.

Time will tell what happens. Just make sure you keep your mind flexible. Don’t become dogmatic about any scenario or outcome. The world is more dynamic than ever before. You will need your critical thinking skills as we continue accelerating faster and faster into the future.

Hope you all have a great start to your week. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

Analyst Marko Papic Breaks Down Bitcoin, Gold, and Stocks Through Geopolitical and Macro Lens

Marko Papic is the Chief Strategist at BCA Research.

In this conversation we talk about what is happening in the market, why he is bullish, what is happening with the dollar, tariffs, bitcoin, gold, global conflict, and how all these different events impact your portfolio.

Enjoy!

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