More US dollar bears amid trade war fear, cooling economy

President Donald Trump's tariff threats once again lifted the US dollar last week, but a growing group of investors is betting against the greenback amid signs the US economy is cooling and on concern a trade war will weaken it further.

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NEW YORK -

The expanding chorus of dollar bears includes asset managers Invesco and Columbia Threadneedle and hedge fund Mount Lucas Management. On Wall Street, Morgan Stanley and Societe Generale are warning clients that going long on the dollar is an overcrowded trade that may not hold up.

They are looking past the daily gyrations sparked by tariff announcements and, as they see it, the narrative around the greenback is only darkening. Instead of deriving support from the prospect that import levies could reignite inflation and keep interest rates elevated, there is now concern that all the uncertainty around tariffs risks undermining an economy that already shows signs of cooling.

The result is that market expectations for Federal Reserve interest rate cuts have intensified, diminishing the dollar's appeal.

Additionally, the aura of US economic exceptionalism that underpinned the dollar's 7.1 per cent surge in the last quarter is dimming as investors ponder Mr Trump's domestic and foreign policies, which include efforts to slash federal expenses and broker a peace deal between Russia and Ukraine.

"I don't think he can send the dollar much higher, because it's really expensive," said Mr Kit Juckes, head of currency strategy at Societe Generale in London. "But can he send it lower? He absolutely can, if he damages the US economy."

The world's primary reserve currency is almost 2 per cent below the post-election peak it reached before Mr Trump's inauguration, amid a risk-on wave that boosted stocks and Treasury yields.