Dollar Sentiment Turns Bearish
• The Bloomberg Dollar Spot Index fell 0.4%, its third consecutive daily decline.
• One-month options pricing shows the most bearish dollar sentiment in five years.
• Market behavior reflects growing concern over US fiscal credibility and policy direction.

G-7 Meeting Raises FX Policy Expectations
• Traders are closely watching the G-7 finance ministers’ meeting for potential changes in currency language or implicit support for a weaker dollar.
• South Korea’s finance ministry confirmed ongoing discussions with the US on FX issues, but no decisions have been finalized.
• Japan’s Finance Minister, Katsunobu Kato, intends to raise currency matters with his US counterpart this week.

Geopolitical Uncertainty Supports Safe-Haven Currencies
• The yen and Swiss franc strengthened after reports of possible Israeli military action against Iranian nuclear facilities.
• The US dollar weakened against all G-10 currencies, raising questions about its traditional role as a safe haven.

Fiscal Deficit Concerns Grow
• Moody’s recently downgraded the US credit outlook, citing persistent large-scale fiscal deficits.
• Congressional discussions around a Republican tax-cut proposal could result in up to $3.8 trillion in lost revenue over 10 years.
• Investors are increasingly hesitant to fund the US’s twin deficits (fiscal and trade), according to Bank of Singapore’s Moh Siong Sim.

Outlook from Institutional Strategists
• Morgan Stanley upgraded its view on US stocks and Treasuries but forecasts continued dollar weakness.
• The US’s economic growth premium relative to global peers is diminishing.
• The yield advantage the US previously held is narrowing, further pressuring the dollar.

What’s Next?
• Multiple headwinds—including geopolitics, fiscal policy risks, and potential FX diplomacy shifts—are converging to pressure the US dollar. The upcoming G-7 meeting may provide further clarity or volatility, depending on the language used around exchange rates.