Is the U.S. dollar debasement trade dead?

The “Dollar Debasement Trade” has largely run its course, according to a Yardeni Research note, which said recent market moves no longer support the view that investors are abandoning U.S. assets.

The note said concerns over tariffs, Federal Reserve independence, and widening fiscal deficits have eased, with traders now pricing in two U.S. rate hikes by early 2027 after Fed Chair Kevin Warsh reaffirmed his focus on price stability.

Currency markets have moved against the debasement narrative. The U.S. Dollar Index has strengthened since last week’s Fed meeting, even as the European Central Bank and the Bank of Japan both raised interest rates.

The euro has weakened in recent sessions, while the yen has fallen to levels last seen in 1986, suggesting tighter monetary policy overseas has not translated into stronger currencies against the dollar.

Gold and Bitcoin have also retreated. Gold has come under pressure from the stronger dollar and higher real interest rates, prompting a cut in the year-end gold price forecast to $5,000 per ounce from $5,500.

Bitcoin has fallen from above $120,000 late last year to around $61,000, reinforcing the view that it has yet to emerge as a significant alternative to the U.S. dollar.

Commodity markets also point to fading inflation concerns. Brent crude has dropped sharply following the reopening of the Strait of Hormuz, erasing much of the geopolitical risk premium, although copper has remained supported by AI-related demand.

Bond markets have also failed to validate the bearish dollar thesis. The U.S. 10-year Treasury yield has stayed largely range-bound, with lower oil prices helping to ease inflation expectations.

Capital flows continue to favor the United States. Treasury International Capital data showed private net inflows reached about $1.3 trillion over the 12 months through April, indicating overseas investors continue increasing, rather than reducing, their holdings of U.S. securities.