Forex traders have now started to short US dollars, playing on expectations underlining the prolonged weakness of the USD. This development has now led traders to bet big on new currency competitors, the ones that have remained underground for long but have now started to lead the economic world as the US dollar continues to weaken. If the aforementioned trend continues, these three currencies may very well end up toppling the US dollar.
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The New Currency Trifecta Is Endangering the US Dollar Dominion
The Wall Street traders are getting lucrative, busy shorting the US dollar. At the same time, these traders have now opened long positions on the euro, all while exploring new currency competitors that can help them secure stable profits. The US dollar’s plunge in recent times has shaken investor sentiment, leading them to explore alternatives in its wake. Per the recent SCMP report, traders are now betting big on the Australian dollar, Chinese yuan, and South Korean won to emerge as top competitors able to challenge the USD dominance. The investors are expecting this trifecta to gain confidence in the future as the US dollar continues to weaken due to Trump’s aggressive tariff policies.
What Are The Experts Saying?
The Chinese yuan has lately been gaining steady traction within the financial circuit.
“The most recent demand in FX options has been a play in USD/CNH lower via dollar put digitals,” as well as other downside option structures. This has been on the back of the most recent truce pact that US President Donald Trump has signed with China.” As stated by Mukund Daga, head of foreign-exchange options for Asia at Barclays Bank in Singapore.
While the yuan and Australian dollar have continued to gain momentum gradually, the surprise debut of the South Korean won is indeed a pleasant surprise to explore, as per FX investors.
“A weaker dollar and a steady, gradually appreciating yuan have underpinned KRW gains in recent weeks despite tariff risks… From a valuation lens, the won remains competitive. Its real effective exchange rate is still cheap relative to historical averages, leaving room for further appreciation without threatening export dynamics.” As shared by Mary Nicola, Bloomberg’s macro strategist in Singapore.
In addition to this, the Australian dollar is also gaining steady traction within the FX investor domain.
“We have seen interest mainly from hedge fund clients to put on AUD/USD topside in the short tenors over the past few weeks.” Troy Fraser, head of foreign-exchange sales for Australia and New Zealand at Citigroup
US Dollar Projected To Weaken In The Future
The US dollar has delivered its worst performance this year, documenting a steep plunge of 10.7% in its valuation. This development has led investors’ sentiment to pivot away from the US dollar to find capable USD alternatives for investment.
The primary reason for the current USD downfall can be attributed to Trump’s aggressive tariff policies, which have taken a toll on the USD as of late.
“Some of this was probably due, and then we’ve certainly given currency traders enough to contemplate what the catalyst now…. You could check a lot of boxes. You’re running massive deficits, and nobody wants to stop that on either side of the aisle. You’re alienating friends both militarily and trade-wise. You’ve got enough potential negative catalysts. And then once momentum starts, it’s hard to kind of stop it.” As shared by Art Hogan, chief market strategist at B. Riley Wealth Management
The prestigious Bank of America has recently shared how the entity believes that the US dollar may continue to be rattled by competitors, especially gold.
“We think central banks are buying gold to diversify reserves. Reduce reliance on the [dollar], and hedge against inflation and economic uncertainty… It’s a trend that we think is set to continue, especially amid uncertainty surrounding US tariffs and fiscal deficit concerns.” Lawson Winder, research analyst at Bank of America, said in a note.
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