"Dollar Smile" theory proposer: The dollar will fall another 13.5% during Trump's term

Stephen Jen, who is long-term bearish on the dollar, stated that despite the recent rebound of the dollar, the weak dollar will continue to decline.

According to media reports on November 11, Stephen Jen, CEO of London-based asset management company Eurizon, said, despite the recent rebound of the dollar, it will drop by 13.5% during Trump's remaining term.

The proponent of the "dollar smile" theory believes that overseas economic growth will accelerate, further weakening the dollar's appeal.

Jen believes that the Trump administration needs the dollar to decline further to reduce the costs of its commitment to revitalize the U.S. manufacturing sector. At the same time, declining investor confidence in the dollar and other major reserve currencies has driven record surges in gold and Bitcoin, a trend that Jen expects to continue.

The dollar has fallen more than 8% this year, making it likely to record its worst year in eight years, primarily influenced by Trump's unpredictable trade policies and expectations of interest rate cuts by the Federal Reserve.

(Dollar Index has cumulatively fallen 8.31% by 2025)

Theoretical Framework Supporting Bearish Expectations

The "dollar smile" theory proposed by Jen over twenty years ago suggests that the dollar tends to strengthen during periods of strong U.S. economic performance or deep recession, while it struggles during periods of only slight economic growth or decline.

Jen stated:

So far this year, the dollar's decline is mainly due to the U.S. pushing capital away from dollar assets, rather than being attracted to other regions. We are still observing a soft landing for the U.S. economy, which should complement accelerated growth in other parts of the world.

He believes:

Despite the recent rebound of the dollar, the next big move will still be downward.

Jen's bearish view was proven to be premature last year when the U.S. economy was performing exceptionally well while other countries were struggling.

However, he believes that despite the shocks caused by the global trade war, the probability of global economic performance surpassing that of the U.S. is now higher. He added that growth in Europe is improving.

The International Monetary Fund (IMF) projects that U.S. GDP growth will slow from 2.8% last year to 2% in 2025. In contrast, the Eurozone economy is expected to grow by 1.2%, up from 0.9% in 2024.

In summary, he assesses that the U.S. is in the "third or fourth inning of a multi-year dollar adjustment," indicating that the dollar's weak cycle will be long-term