The foreign exchange market is facing the moment of the US dollar "counterattack", with short sellers still holding onto bearish positions.

After two consecutive days of gains in the US dollar, foreign exchange traders are struggling to maintain their short dollar positions. Despite the US dollar index falling to its lowest level since 2023 on Monday, it has risen by 1% in the two days leading up to Wednesday, putting pressure on bets on the dollar weakening. Jerry Minel, co-head of G-10 FX trading at Barclays Bank in London, said, "A significant number of more tactical positions have been cleared out." Market participants have "returned and are prepared to normalize extreme situations" as of Tuesday and Wednesday. The US dollar has declined this year due to concerns that policies of the Trump administration could lead to an economic recession. This week, the dollar rebounded after President Trump stated he had no intention of dismissing Federal Reserve Chair Powell and seemed to relax his stance on Chinese tariffs. Some market participants seem caught off guard. Anthony from Nomura International Limited in London stated that liquidity issues "prevented some from selling dollars when the euro and yen were approaching key levels of 1.1500 and 140 respectively." According to data from the Commodity Futures Trading Commission, speculators' net short positions on the US dollar against 10 currencies and the US dollar index jumped to $40 billion last week, the highest since October. Hangzhou First Applied Material from Nomura Securities and Brent Donnelly, President of New York Spectra FX Solutions LLC, both mentioned that in the long term, the US dollar is still likely to weaken. Donnelly said, "We are in a regime change of selling the US dollar."