Growth prospects and political background help the US dollar rebound after falling for four consecutive months.

After experiencing a four-month decline, the US dollar may have a chance to catch its breath as the political and economic backdrop turns in its favor, and some market analysts are beginning to see a bullish trend in the US dollar. Analysts note that the pressures on the US dollar caused by factors such as the rise in the Euro, expectations of Federal Reserve interest rate cuts, and the uncertainty surrounding President Trump's trade and fiscal policies, have eased. Meanwhile, improvements in US growth prospects and business confidence, continued purchases of US stocks and bonds by foreign investors, and market expectations of Trump being less aggressive before the midterm elections this year, are factors supporting the US dollar. Data shows that the US dollar index, which measures the US dollar against six major trading partner currencies, has been below 100 since November last year and has fallen by 6.7% since the so-called "D-day" in early April last year, hitting a four-year low in January. The rebound of the US dollar may have global market implications, affecting trade flows, multinational company profits, and investment strategies of trillions of dollars of cross-border capital. After months of decline, the US dollar's recovery will also alleviate pressure on emerging market currencies and change global investors' hedging calculations. Dan Tobon, Head of G10 Foreign Exchange Strategy at Citigroup, said, "In today's bearish US dollar market, we are bullish on the dollar." He believes the US dollar will strengthen before the third quarter of this year, especially against the Euro, Canadian Dollar, and Pound, despite the impact of foreign investors hedging their exposure to the US dollar and threats to Federal Reserve independence by the Trump administration. Dan Tobon stated that the Trump administration taking more policy measures focused on reducing political volatility before the midterm elections will provide additional support for the US dollar. He added, "We believe that the market's 'animal spirits' will return. We believe that all these factors combined should be quite positive for the US dollar." Jane Foley, Head of Foreign Exchange Strategy at Rabobank in London, believes that most of the negative sentiment has already been reflected in the US dollar exchange rate, and the relatively strong US consumer is attracting significant investments into the United States. Setting the stage for a rebound The softening of the US dollar has affected global trade flows, multinational company profits, emerging market currencies, and the investment strategies of trillions of dollars of cross-border capital. Last year, investors increased their hedging ratios, and their trades became another reason for the decline in the US dollar. Now, positions in the derivatives markets show a slow shift in sentiment. According to data from CME Group, currency options data from January showed traders buying hedges against further decline in the US dollar and being optimistic about the Euro. However, data shows that hedging demand has decreased since Kevin Warsh was nominated to lead the Federal Reserve, and risk reversals for the Euro and Pound (measuring option skew) have also fallen since January. Analysts note that Warsh's reputation as a steady leader who is not inclined to have the Federal Reserve buy more market assets has eased concerns about the Fed being overly dovish and losing its independence. Garrett DeSimone, Head of Quantitative Research at OptionMetrics, stated that Warsh's nomination has been a contributing factor in easing the recent decline in the US dollar, but this is only part of the reason. OptionMetrics data also shows increased interest in so-called "butterfly" structures, which bet on base currency pairs remaining relatively stable. DeSimone said, "Overall, this indicates that the market is reducing bets on US dollar depreciation, while investors are still paying convexity premiums on both directions." However, not everyone is convinced, as analysts at JPMorgan Chase and Bank of America are not entirely confident that the US dollar will significantly strengthen. Francesca Fornasari, Head of Foreign Exchange at Insight Investment, shares a similar view, stating that the US government's views on the currency have changed in recent days. Fornasari said, "We are in an environment where the government wants a weaker US dollar. We believe the US dollar will continue to weaken this year."