The USD bull case has become more prominent in recent weeks. Strong US data and a repricing of Fed rate hikes in the year ahead support USD gains (Fig. 1 ). US equities have been outperforming for most of the last few months (albeit with a recent pull back), which has aligned with a resumption of inflows into US capital markets. Upcoming tech IPOs are adding further fuel to the fire regarding potential USD demand for US assets. In addition, ongoing Middle East tensions provide a further source of support for USD, even as energy prices have softened on the hopes of de-escalation. The latest headlines from President Trump about a deal being signed over the coming weekend will obviously test USD resilience in the near term.
That said, positioning risks may already be starting to turn in the other direction. While USD longs (as measured by CFTC non-commercial positions. Fig. 2) are not that elevated, short positions are being built in a range of other G10 currencies, albeit not to the same extent as in early 2025.
