For most of the year, shorting the dollar has been the foreign-exchange world’s favourite pastime. In a $9.6 trillion-a-day market, that’s no small hobby. Yet the trade once billed as “easy money” is starting to wobble.
The world’s reserve currency is back near a two-month high, even amid Washington’s government shutdown pantomime. Traders in Asia and Europe say hedge funds are quietly loading up on bullish dollar options, betting the rebound against major peers will stretch through year-end.

The catalyst isn’t so much America’s strength as everyone else’s fragility. The euro and the yen have both slumped sharply this month, while a chorus of cautious Fed officials has restored the greenback’s halo as the “least dirty shirt in the global laundry.”
That strength is proving awkward for some of Wall Street’s biggest evangelists of dollar doom, Goldman Sachs, JPMorgan, Morgan Stanley, who have spent months preaching the gospel of the weaker buck. Should the rally hold, it will ripple through everything from central-bank policy to commodity prices and emerging-market debt. A strong dollar, after all, makes everyone else’s life more expensive.

A sharper rebound could also detonate a few of this year’s most crowded trades, from optimistic bets on emerging-market equities and bonds to rosy forecasts for US exporters suddenly facing a pricier currency.
Markets had baked in a fantastical series of Fed cuts; pulling that off without breaking the labour market would take divine intervention.
The Bloomberg Dollar Spot Index has risen around 2% since mid-year, clawing back part of its worst first-half slump in decades. The early-2025 plunge was fuelled by the quaint belief that inflation was “under control” and the Fed would cheerfully resume cutting rates. Then came April’s tax barrage, resurgent trade tensions, and the rumour that Trump preferred a weaker dollar to help exporters — all while he kept jawboning the Fed, a one-man FX volatility machine.

Yet global investors never truly deserted America. Foreign demand for Treasuries remains robust, Big Tech remains irresistible, and even the sceptics have quietly hedged their dollar exposure rather than abandon it.
CFTC data show that by late September, hedge funds and asset managers were still net short, but far less so than mid-year, leaving ample room for forced unwinds if the rally extends.
The future direction, as always, depends on the Fed. Markets still price in two quarter-point cuts by year-end and more in 2026, but policymakers’ recent remarks and the September minutes hint at a divided committee: inflation is sticky, the labour market stubborn, and the case for a rate-cut frenzy remains thin. A full easing cycle is now priced in, which wasn’t true before, so a reversion to the mean was inevitable.

For now, the dollar’s renewed swagger is squeezing the last short-sellers still clinging to the “sell America” narrative. There’s plenty of money waiting for that story to come true, but not yet.
Elsewhere, the macro plot thickens. The shutdown has delayed key labour data; Bitcoin and gold are back in vogue as budget angst grows; and the yen and euro are tripping over their own domestic dramas.
In Japan, the likely ascent of Sanae Takaichi, whose debt-fuelled, inflation-friendly agenda gives investors déjà vu, has driven the yen to its weakest since February. In France, Emmanuel Macron’s perpetually crisis-ridden government is doing its part to keep the euro pinned near its August lows.
The dollar remains the least dirty shirt in the global laundry. Don’t expect it to fall too far while Europe and Japan are both unravelling at the seams.