United States President Donald Trump's ire at the dollar's resilience is setting him at odds with those traders who have been turning its strength and stability into a source of revenue.
The greenback's relatively high yield and muted volatility have made it a destination of choice for investors seeking to benefit from the so-called carry trade. But recently, they've been starting to question how long the favourable conditions will last, and fresh comments on Saturday from Mr Trump warning that the currency is too strong may inject an extra measure of uncertainty.
The greenback has so far defied bearish forecasts for the year, with a cooling global economy and a dovish tilt by central banks around the world keeping a number of other currencies such as the euro under pressure, even as the Federal Reserve hits pause on rate hikes.
While Treasury yields have retreated amid the Fed's recent policy pivot, those in Europe, Japan and elsewhere are mired close to all-time lows, maintaining a healthy premium for US debt. Implied volatility in major developed-market currencies has been edging down close to levels unseen since 2014.
That has created conditions that are ripe for carry trades - where traders borrow in lower-yielding currencies such as the euro and put that money to work earning interest in something higher-yielding like the dollar.
The risks to this, though, are that volatility will pick up or that the greenback itself could lose value, whittling away any potential profit from the interest-rate differential.
Mr Trump said over the weekend that the US dollar is too strong, and took a swipe at Federal Reserve chairman Jerome Powell as someone who "likes raising interest rates". He said: "I want a strong dollar but I want a dollar that does great for our country, not a dollar that's so strong that it makes it prohibitive for us to do business with other nations and take their business."
The dollar weakened by as much as 0.2 per cent against the yen and as much as 0.3 per cent versus the euro in early trading yesterday in the Asia-Pacific, although it remained within its Friday ranges against both. The Bloomberg Dollar Spot Index erased losses to be little changed in early London trading.
For traders, a reckoning could be on the way later this year if the dollar bears ultimately prove correct, and the diminishing attractiveness of the carry trade might in turn fuel US currency weakness.
"The strength we've had in the dollar has been closely related to the fact that interest rates are higher than everywhere else," said Mr Andrew Sheets, Morgan Stanley's chief of cross-asset strategy.
"In 2019, those factors are in the process of peaking and reversing. If that happens, then I think relative interest rates between the US and the rest of the world should put in a peak. If so, then the currency should peak."
The median forecast of analysts surveyed by Bloomberg is for the greenback, as measured by Intercontinental Exchange's US Dollar Index, to tumble by more than 4 per cent this year from levels reached late on Friday. It had climbed by more than 6 per cent over the past 12 months as of Friday.
The ICE Dollar Index is just one measure of greenback strength, and one that is focused on how the currency performs against a small group of developed-market peers.
While it's up about 0.3 per cent since the end of last year, a trade-weighted gauge from the Fed was down by around 1 per cent as of Feb 22. The Bloomberg dollar index, which also includes emerging currencies, was off by around 0.2 per cent on the year as of Friday's close.
Much of that may reflect solid performance this year by a number of emerging market currencies.
After many years as a low-rate funding currency to rival the likes of the yen as a go-to haven, the dollar is now going head-to-head with high-yield developing market peers that often rise and fall with global risk sentiment.
Ms Noelle Corum, portfolio manager at Invesco's fixed-income group, believes that the dollar will be weaker by the end of the year.
"Where's the growth going to come from?"
BLOOMBERG
