Chart of the Week

Despite increased investment in U.S. dollar-denominated assets from abroad, many foreign exchange speculators have bet against the dollar throughout 2025. The chart shows speculator net positions in euro and yen futures contracts; both have been positive for much of 2025, which means traders expect these currencies to strengthen relative to the dollar.

The widespread pessimism about the dollar may be magnified if investor concerns about continued Federal Reserve (Fed) rate cuts or a U.S. economic soft patch build into late 2025 and early 2026. As of late October, we see the potential for a slight retread lower in the dollar moving into year-end 2025.

As we look into 2026, we believe this negative near-term view in the dollar should dissipate. In our view, it would not take much of a sentiment shift to lead many investors to reverse their bets against the dollar — potentially boosting its value. This shift in sentiment could be caused by a host of factors, including an early stall in the Fed’s rate cutting cycle, stronger U.S. growth, or rising political risks internationally. We expect a slight rebound in the dollar by year-end 2026.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards.

Investments in currencies involve certain risks, including credit risk, interest rate fluctuations, fluctuations in currency exchange rates, derivative investment risk and the effect of political and economic conditions. The use of currency transactions to seek to achieve gains in the portfolio could result in significant losses to the portfolio which exceeds the amount invested in the currency instruments. In addition, exchange rate movement between the U.S. dollar and foreign currencies may cause the value of the fund’s investments to decline.

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