Synopsis:

The US dollar is suffering through its worst April on record and one of the worst monthly performances in three decades, according to Credit Agricole. Mounting concerns over unorthodox US policy, FX market intervention risks, and attacks on the Fed’s independence are eroding confidence in the greenback—triggering outflows and a fragile market tone.

Key Points:

• USD Sentiment Collapse:
  What began as market discomfort with President Trump’s tariff and fiscal policies has grown into panic about the long-term USD outlook, driving a historic sell-off in the trade-weighted dollar (NEER).

• Two Central Fears Driving the Sell-Off:

  1. “Mar-a-Lago Accord” Narrative: Speculation that the US could pursue a coordinated USD devaluation to fix its external imbalances.

  2. Fiscal Dominance Over the Fed: Trump’s renewed attacks on Fed Chair Powell raise fears of compromised central bank independence.

• USD Outflows Emerging:
  Their ETF tracker shows signs of capital exiting US equities, suggesting a broader reassessment of USD-denominated assets.

• Why Credit Agricole Isn’t Fully Bearish Yet:

  • They doubt a formal devaluation accord will emerge anytime soon.

  • The Fed is expected to maintain its inflation-fighting focus, especially as tariffs and FX depreciation drive price pressures.

  • EUR appreciation, by contrast, may complicate the ECB’s inflation mandate—possibly limiting further EUR strength.

  • USD’s reserve-currency status remains intact due to a lack of viable global alternatives.

• Short-Term USD Risks Remain Elevated:
  Even if structural confidence holds, market sentiment is poor, and upcoming Fed commentary and US data releases may do little to reverse that tone.

Conclusion:

While Credit Agricole sees some structural resilience in the USD based on inflation dynamics and reserve status, they acknowledge that the dollar is in a precarious position. Investor fears over policy credibility and Fed independence could continue to drive near-term underperformance—especially if data or rhetoric fails to shift market psychology.