In May, the sharp rise is just a "last gasp"? Wall Street giants collectively pour cold water: don't blindly chase the high dollar!

It was noted that in May, as traders digested the prospect of higher interest rates in the United States, the dollar exchange rate continued to rise. However, this rebound has made Wall Street strategists cautious about further appreciation of the dollar. As investors increase their bets that the Federal Reserve will raise interest rates before the beginning of 2027, boosting the attractiveness of U.S. assets, the Bloomberg Dollar Spot Index has risen by 0.7% since May. Since the dollar began its downward trend in 2025, the index is now expected to record its fourth consecutive monthly increase. Strategists from Morgan Stanley to J.P. Morgan believe that the focus is now shifting towards the possibility of other major central banks raising interest rates more aggressively. At the same time, the optimistic sentiment regarding the U.S.-Iran peace agreement is diminishing the safe-haven demand for the dollar. According to compiled forecast agency data, the consensus view on Wall Street is that the major indicators for the dollar will decrease by over 1% in the third quarter and by 2% in the fourth quarter. "We are not blindly chasing the rebound in the dollar now," said Eric Nelson, macro strategist at New York J.P. Morgan Securities LLC. "The 'U.S. exceptionalism' may have reached another peak, which will limit the dollar's further breakthrough and ability to break out of the mature range." Nelson expects that the crowded positions in U.S. artificial intelligence (AI) and semiconductor stocks will "expose the dollar to new downside risks." Since April - around the time U.S. President Trump announced a ceasefire agreement with Iran - the dollar index has failed to close above the 200-day moving average. For over a year, this moving average has been suppressing the dollar's upside; during the peak of the Middle East conflict in March, the index briefly traded above this key level before falling back down. Nelson believes that in terms of economic growth and stock market returns, the U.S.'s outstanding performance compared to the rest of the world has reached "extremely extreme levels" and is highly susceptible to correction. He stated that, except during the epidemic period of 2020-2021, the gap in real gross domestic product (GDP) between the U.S. and its 10 major peers has never been as large as it is now in the past quarter-century. At the same time, the narrowing of interest rate differentials between the U.S. and the rest of the world may provide support for the movement of other major currencies against the dollar. Matthew Hornbach, global macro strategy director at Morgan Stanley, expects the European Central Bank and the Bank of Japan to raise rates to levels closer to the federal funds rate in the coming months, continuing the trend of policy convergence between the U.S. and the rest of the world. "The macro background supports a softening dollar," he said. Financial markets currently predict that by March 2027, the Federal Reserve will raise rates by about 30 basis points, the ECB by 60 basis points, and the Bank of England by about 40 basis points. Forward market signals indicate that the Bank of Japan will increase rates by 40 basis points by the end of this year. Howard Duh, U.S. corporate foreign exchange strategist at Toronto Dominion Securities, said, "The market does not believe that the Fed will be more hawkish than other central banks as it was during the post-epidemic (which began at the end of 2021 and ended in 2023) rate hike cycle." The company still maintains a bearish outlook on the dollar.