On Wednesday (May 21), the US dollar index plummeted, falling below the critical psychological threshold of 100, marking a new low in over a week and causing market tension. Despite hawkish comments from Federal Reserve officials reiterating their firm stance against inflation, the market was not convinced, sparking widespread concerns about the future trajectory of the dollar.
According to options market data, there was a surge in the trading volume of bearish options betting on a weaker dollar, with bearish market sentiment reaching its highest level on record. This extreme sentiment highlights investors' concerns about the US economic outlook and policy uncertainties.
Analysts noted that the reasons behind the dollar's sell-off are not merely due to a shift in the Federal Reserve's stance. A deeper reason lies in the recent ambiguous policy signals regarding tariff increases from the Trump administration. These policies have continuously disturbed the market, undermining investor confidence in the coherence of US fiscal policy and the path of economic growth.
In recent months, optimism about the prospects for US economic recovery has gradually cooled, especially against the backdrop of emerging trade tensions, weakening consumer data, and declining business confidence, which have begun to shake the dollar's safe-haven status.
While some analysts believe that the Federal Reserve's hawkish stance may provide some short-term support, given multiple pressures such as global economic slowdown, unresolved US debt issues, and rising policy risks, the "avalanche-like" selling pressure on the dollar is not merely a baseless worry.
Currently, the market's focus will shift to the upcoming US economic data and whether the Trump team will further clarify their economic and trade policy stance, which will determine whether the dollar will further decline or temporarily stabilize.
