Barclays Bank indicates that the US Dollar's relative strength in recent months demonstrates that the fundamentals supporting the currency remain solid, despite facing risks of economic weakness and challenges to Federal Reserve independence. The Bloomberg Dollar Index has gained approximately 1.5% since the second half of this year. On Thursday, the index rose for the second consecutive trading day, reaching its highest level in nearly three weeks following the release of weekly initial jobless claims data that came in below expectations.

Barclays foreign exchange strategists led by Themistoklis Fiotakis and Lefteris Farmakis stated that despite encountering "unconventional bearish events," this global reserve currency has maintained stability. Factors supporting the Dollar include: the Dollar's relative valuation advantage and the lack of alternative currency options available to global investors seeking foreign exchange hedge diversification.

The strategists noted in a report released Thursday: "Following significant volatility from February to May, the Dollar entered a narrow trading range and has failed to weaken substantially further." Earlier this year, the broad global tariff policies introduced by US President Donald Trump, followed by severe selloffs in US stock and bond markets, led to the Dollar experiencing its worst first-half performance in 50 years with significant depreciation.

However, several fundamental factors have provided support for the Dollar. First, strategists believe the Dollar's real value is below the level reflected by current spot exchange rates. Tariffs artificially depress the implementing country's currency rate by distorting trade conditions and tilting them in favor of the implementing nation. However, contrary to Barclays' (and virtually all Wall Street institutions') expectations at the beginning of the year, the Dollar has not appreciated to offset this effect.

The institution believes that accounting for US tariff factors, the EUR/USD exchange rate should actually be close to 1 Euro to 1.30 Dollars, significantly higher than the current level of approximately 1 Euro to 1.1670 Dollars.

Second, Barclays remains skeptical of the view that "global investors who suffered losses from Dollar declines earlier this year are massively increasing Dollar foreign exchange hedging." The strategists explain this is because these investors need to shift their foreign exchange exposure to other channels – either back to their domestic fiat currencies or toward a third hedging currency.

However, special risks present in Japan, Switzerland, China, and other countries make the "third currency" option difficult to achieve. Meanwhile, "concerns about Asian managed floating currencies" also limit the "return to domestic currency" option.

Nevertheless, Barclays acknowledges that the main risk facing its Dollar bullish view is the potential threat to Federal Reserve independence – particularly Trump's attempt to remove Federal Reserve Governor Lisa Cook. The strategists point out that if the president is allowed to interfere in central bank affairs, the Fed's credibility would be questioned, potentially triggering market Dollar selling.

The Barclays team stated: "The most decisive future event may be the Supreme Court's ruling on Governor Cook's position. Unless there is an outcome of 'the government can arbitrarily replace Federal Open Market Committee members,' US economic stabilization and recovery will further help stabilize the Dollar."