After four consecutive months of decline, the US dollar may be poised for a recovery as political and economic conditions begin to shift in its favor, with some market analysts turning bullish. Analysts note that previous pressures on the dollar—stemming from euro strength, expectations of Federal Reserve interest rate cuts, and uncertainties linked to former President Trump’s trade and fiscal policies—have started to ease. At the same time, improving US growth prospects and business confidence, sustained foreign investment in US stocks and bonds, and market expectations that Trump will adopt a less aggressive stance ahead of the midterm elections are now supporting the dollar.

Data show that the US Dollar Index, which measures the currency against a basket of six major peers, has remained below 100 since last November. Since early April of last year—a period some refer to as "liberation day"—the index has fallen 6.7%, hitting a four-year low in January. A rebound in the dollar could have wide-reaching effects on global markets, influencing trade flows, multinational corporate earnings, and investment strategies governing trillions of dollars in cross-border capital. A sustained recovery would also ease pressure on emerging market currencies and alter global investors’ hedging calculations.

Dan Tobon, head of G10 FX strategy at Citi, stated, "We are dollar bulls in what is currently a dollar bear market." He expects the dollar to strengthen through the third quarter of this year, particularly against the euro, Canadian dollar, and British pound, despite headwinds from foreign investor hedging and concerns over the Trump administration's influence on Federal Reserve independence. Tobon added that a more growth-focused and less politically volatile approach from the Trump administration ahead of the midterm elections would offer further support to the dollar. "We believe animal spirits will make a comeback. All these factors combined should be quite positive for the dollar," he noted.

Jane Foley, head of FX strategy at Rabobank in London, suggested that much of the negative sentiment is already priced into the dollar’s exchange rate, while the relative strength of the US consumer continues to attract substantial investment inflows. The dollar's recent weakness has impacted global trade, corporate profits, emerging market currencies, and cross-border investment strategies. Last year, investors increased hedging ratios, contributing to the dollar's decline. Now, derivatives market positioning indicates a gradual shift in sentiment.

According to CME Group, currency option data from January showed traders buying protection against further dollar declines and expressing optimism toward the euro. However, data also indicate that hedging demand has softened since Kevin Warsh was nominated to lead the Federal Reserve, and risk reversals—a gauge of option bias—for the euro and pound have retreated since January. Analysts say Warsh’s reputation as a steady leader unlikely to push for further Fed asset purchases has eased concerns about excessive monetary easing and loss of central bank independence.

Garrett DeSimone, head of quantitative research at OptionMetrics, noted that Warsh’s nomination helped alleviate recent dollar weakness, though it was only one factor among several. Data from OptionMetrics also show growing interest in "butterfly" structures, which bet on relative stability in currency pairs. "Taken together, this suggests the market is reducing bets on dollar depreciation, while investors continue to pay for convexity in both directions," DeSimone explained.

Not all analysts are convinced, however. Strategists at JPMorgan and Bank of America remain skeptical of a strong dollar rally. Francesca Fornasari, head of currency management at Insight Investment, shares this view, pointing to a recent shift in the US administration’s stance on the currency. "We are in an environment where the government wants a weaker dollar. We expect the dollar to continue declining this year," she said.