Could the “dollar smile” be fading?
June 04, 2025
Tariff talk and trade tensions in recent months have triggered sell offs of the US dollar. In fact, its value (as of June 2) has declined more than 9% since January, with a 4.5% drop in April alone. Such softening of the world’s reserve currency has led many to wonder if the dollar smile theory is fading. “The US dollar has long benefited from pro-cyclical flows, garnering a risk-on bid thanks to stronger relative growth, and a risk-off bid during flights to safety. The breakdown of that relationship is notable to say the least,” said Garrett Melson, Portfolio Strategist, Natixis Investment Managers Solutions.
