Dollar's Rebound Seen as Fleeting as Institutional Investors Rebalance

Jens Nordvig, the founder of Exante Data, who specializes in tracking global capital flows, has been in constant communication with major global investors, including hedge fund managers, corporate financial executives, pension funds, and sovereign wealth funds. Recent market feedback has convinced him that the dollar's rebound, following the easing of trade tensions, is merely a fleeting phenomenon.

Nordvig believes that the prolonged bear market for the dollar has just begun. He attributes this to the chaotic measures taken by the Trump administration to reshape the U.S. economy, which have disrupted the global trade landscape. The inconsistent and sporadic tariff policies have "irreversibly eroded" investor confidence in the dollar. Notably, the current U.S. Treasury Secretary, Steven Mnuchin, was once an early client of Nordvig when Mnuchin was working at a hedge fund.

Nordvig's key prediction is that, unlike speculators who quickly sold off the dollar following the tariff hike last month, institutional investors who have heavily allocated to U.S. stocks and bonds over the past decade are now "rebalancing their asset allocations." While these long-term investors may take a few more months to reduce their dollar holdings or establish short positions, it is clear that the pain for dollar bulls is imminent.

"Many of our 'real money' clients have indicated that they have not yet taken any substantial action," Nordvig said in an interview. "All these long-term investors are looking for opportunities to gradually reduce their dollar exposure." Nordvig began to take a bearish stance on the dollar in early March.

The dollar surged to its highest level in a month on Monday. However, it has declined by more than 5% since the beginning of the year. The trade war initiated by Trump has raised concerns about a slowdown in the U.S. economy and rising inflation, leading to significant sell-offs in U.S. stocks and other assets.

Nordvig is one of many analysts and investors who now widely believe that the dollar is facing a long-term structural shift. The sudden surge in the Taiwan dollar at the beginning of the month further exacerbated market concerns, as foreign investors, including Asian export-oriented countries, may initiate a wave of selling U.S. dollar assets, unwinding their long-held dollar positions.

Nordvig suggests that clients allocate more to euro and gold assets. Born in Denmark, Nordvig previously served as a senior currency strategist at major Wall Street institutions such as Nomura, Goldman Sachs, and Bridgewater. In 2016, he founded Exante Data, focusing on capital flow analysis and providing consulting services to top hedge funds and institutional investors.

Nordvig anticipates that the dollar will face greater pressure around September, as tariff-driven inflation eases and U.S. economic growth slows, providing the Federal Reserve with room to begin cutting interest rates. "When structural capital flows align with the Federal Reserve's cyclical policies, I believe the dollar could experience a significant weakening," he said.