Markets are increasingly turning against the US dollar, with the number of short positions at its highest since January 2012, according to a Bank of America survey measuring currency and interest rate sentiment.
The shift in currency sentiment is also reflected in the US Dollar Index, which measures the dollar's value against six major currencies. The index has dropped by 1.3% since the beginning of this year.
The record number of bearish market positions reflects deep skepticism towards the dollar
In the latest Bank of America survey, the dollar's position in February was at its most negative in over 14 years. Additionally, the dollar's total exposure has fallen below the lows of April 2025, indicating that fund investors' confidence is still deteriorating.
Although efforts have been made to restore confidence in the Federal Reserve, doubts continue. President Trump's January 2026 nomination of Kevin Warsh as Fed chair aimed to reassure investors about U.S. monetary policy. Nevertheless, demand for the dollar has not recovered.
"Respondents to the survey see increasing signs of weakness in the U.S. labor market as the biggest risk to the dollar's decline," WSJ reported.
At the same time, the bear-like atmosphere has strengthened with a clear decline in the U.S. dollar index. In 2025, the index fell by 9.4%, and the decline has continued this year as well.
On January 27, the DXY dropped to 95.5, the lowest value since February 2022. At the time of writing, the DXY had recovered and risen to 97.08.
Market analysts are highlighting technical signals that indicate further decline for the dollar. Trader Donny estimates that the index could drop below the level of 96.
"I see a second phase of decline forming in the DXY," he wrote.
Other experts are looking further into the situation. The Long Investor pointed to longer-term charts that he believes predict a deeper structural decline. He estimates that bearish targets could reach levels of 52–60 in the coming 2030s.
However, some analysts see a possibility for the dollar's recovery. Macro Pulse noted that recent developments may indicate the index is in a phase of forming a "possible bottom."
"My base forecast is a return towards 103–104 by July 2026," the publication states.
Impacts on the cryptocurrency markets
A weaker dollar generally creates more favorable conditions for risky assets, such as cryptocurrencies. When the dollar's value decreases, investors seek returns from alternative targets or protection against the weakening of fiat currencies.
Bitcoin is often seen as a hedge against the weakening of monetary policy. Thus, its attractiveness may increase during sustained dollar weakness.
However, the connection between the weakening dollar and the rising prices of cryptocurrencies is not always straightforward. The broader macroeconomic environment plays a crucial role.
If the softness of the dollar indicates a slowdown in U.S. economic growth or increasing recession risks, investors may seek to protect themselves from risks. In this case, capital may shift to traditional safe havens, such as gold, rather than more volatile digital assets.
Recent positioning data supports caution. The number of bullish bets on gold has increased, indicating that many investors remain confident in gold's prospects.
As the value of the dollar declines and fund investors cling to historical bear positions, the coming months will show whether the crypto markets can leverage changing currency dynamics or whether macroeconomic uncertainties continue to dampen the rise of digital assets.