Investing.com -- The dollar looks set to notch its third-straight weekly win, but that hasn’t shaken the confidence of traders piling on bearish bets for the greenback to resume its slide, according to the latest Bank of America (NYSE:BAC) FX and Rates Sentiment Survey.
Shorting the dollar has emerged as the highest conviction trade for 2025, the survey found, with nearly a third of fund managers naming it their top idea. “Short USD is highest conviction trade & survey participants are close to benchmark duration in both US & core Europe,” Bank of America strategists said, underscoring that investors are positioning for a turn even as the dollar remains firm.
Despite the greenback’s recent run, conviction in further gains is fading. Global investors have reduced their USD FX exposure to near historic lows, according to the survey. Investors haven’t meaningfully rotated out of U.S. duration, suggesting that “de-dollarization” is playing out more through hedging than outright asset reallocation.
Valuation and narrowing rate differentials are now seen as the main headwinds for the dollar, with U.S. fiscal concerns also cited as a growing risk.
A majority of respondents in the survey, expect U.S. exceptionalism to fade this year, with almost half seeing the dollar index peaking in the first quarter and another quarter expecting a peak in the second quarter.
“There is strong conviction on how to position in FX; EUR is widely expected to benefit,” the strategists said, as investors look for opportunities outside the U.S.
On the policy front, meanwhile, most participants believe trade policy uncertainty will decline in the coming months, though a plurality see Trump administration policies as stagflationary.
The survey also found that the risk of the Fed holding rates steady-contrary to market pricing for cuts-remains a key potential tailwind for the dollar, but most are betting that this won’t be enough to sustain the rally.
While the dollar’s winning streak hasn’t ended yet, the consensus among fund managers is clear: the next big move could be down, not up.