Dollar positioning has reached its most negative level on record in Bank of America’s survey, reflecting broad expectations of US softness and potential Fed easing, with labour market risks seen as the main catalyst for further weakness.
Summary:
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Investor positioning in the US dollar has fallen to its most negative level since at least January 2012.
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Net exposure to the greenback is at a record underweight in Bank of America’s latest survey.
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Short positioning exceeds previous bearish extremes, including last April’s lows.
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Concerns over Fed independence have eased, but this has not revived demand for the dollar.
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Survey respondents see further US labour market weakness as the key downside risk for the currency.
Investor sentiment toward the US dollar has turned decisively bearish, with positioning now at the most underweight level on record in Bank of America’s FX and rates sentiment survey, which dates back to January 2012.
The February survey shows net exposure to the dollar falling to unprecedented lows, with short positioning, effectively bets that the currency will decline, reaching its most extreme level in more than 14 years. Exposure has dropped below the previous trough seen last April, underscoring the scale of the shift in conviction against the greenback.
The positioning reflects a broad consensus that the dollar faces downside risks. Market participants appear to be leaning toward a softer outlook for US growth and inflation, alongside expectations that Federal Reserve policy could ease over time. Notably, concerns about the Fed’s institutional independence have diminished following President Donald Trump’s nomination of Kevin Warsh as the next Fed Chair. However, the easing of those political anxieties has not translated into renewed appetite for US assets or a rebound in dollar demand.
Instead, respondents to the survey cite further deterioration in the US labour market as the primary catalyst that could drive the currency lower. While headline employment data have remained relatively stable, any meaningful softening in hiring or a rise in unemployment could reinforce expectations of rate cuts and widen interest rate differentials against the dollar.
At the same time, such extreme positioning introduces asymmetry. When market consensus becomes heavily one-sided, currency moves can become more volatile, particularly if incoming data or Fed communication challenge prevailing assumptions. A surprise upside inflation print or firmer labour market data could force rapid short-covering.
For now, however, the message from positioning data is clear: investors are aligned for a weaker dollar. Whether that trade extends or reverses will depend largely on the evolution of US macro data and signals from the Federal Reserve in coming months.
