Tariffs were supposed to be USD bullish, but I was supposed to be a corporate attorney. What can you say? Gang aft agley.

Instead, Donald Trump’s “greatest” tariff escalations, alongside an aggressively (read: suspiciously) adversarial approach to diplomatic relations with America’s closest global allies and a surreal turn for the undemocratic back at the ranch, undercut the dollar, which came into May on a three-month losing streak.

To be sure, Trump wanted a weaker currency. Assuming it makes sense to talk about “winning” and “losing” in the context of trade wars (it doesn’t), a weaker currency’s one path to “victory.” What Trump probably didn’t mean to do, though, is trigger capital flight or otherwise create an existential crisis tied to the perception that the US is in the process of i) reneging on its hegemonic commitments and ii) marking a transition towards authoritarian government at home.

As a quick aside, there’s a tendency among Trump supporters to suggest, tacitly, that such concerns aren’t just overblown but that in fact, people who express them aren’t really worried. As if, for example, the Germans would abandon their religious commitment to fiscal rectitude not because they’re genuinely worried America might not show up if Vladimir Putin’s revanchism manifests as an incursion into NATO territory, but rather as a performative manifestation of “TDS.”

When you call attention to the absurdity of such suggestions, Trump’s defenders resort to the 3D chess narrative: “Well, sure, Germany might actually be worried, but that was the whole point! Of course Trump would honor America’s Article 5 commitments if push came to shove, but the genius of his approach is that in tricking the Germans into believing he wouldn’t, he’s reduced the odds of Russian aggression by compelling Europe’s industrial powerhouse to re-arm. Don’t you see?! It’s the ‘Art Of The Deal’!”

Whatever you want to say about Trump’s first term and the extent to which critics exaggerated the risks (never mind the armed insurrection at the US Capitol), people, investors and entire nation states are indeed genuinely scared in Trump’s second term. And for very good reasons. It’s not “TDS.” It’s “WTAFITGD”: “What the actual f-ck is this guy doing?!”

That (WTAFITGD) goes a ways towards explaining suddenly (and so far persistent) bearish sentiment on the greenback. I talked about this (again) last week in “Debating The Dollar,” when I noted that risk reversals still suggested investors were hedging downside. Bloomberg underscored the point on Tuesday. “The difference in demand between bullish and bearish options still signal[s] long-term bearish sentiment on the greenback, albeit with slightly less conviction than last week,” Vassilis Karamanis wrote.

Note that the dollar’s still trading with risk, which is to say not as a safe-haven, but rather as a risk-on asset. On Monday, in the wake of the US-China trade truce (otherwise known as “another Trump fold”), the greenback had its best day since the election.

You could argue Monday’s gain was in part a function of higher front-end US yields (i.e., pared-back bets on Fed easing), but if we’re honest, it was just more evidence to support the notion that the dollar’s going to trade stronger on “sane” days for the Trump administration and weaker on “crazy” days. Monday was a sane day. Relatively.

But to say markets are skeptical that sane days will outnumber crazy ones over the next three years would be an understatement.

For example, the May vintage of BofA’s closely-watched global fund manager poll showed exposure to the dollar dropped to a near two-decade low this month, with a net 17% Underweight (figure on the left, below).

At the same time, “US dollar crash on international buyers’ strike” garnered 14% of the tail risk vote, double April’s share (figure on the right, above).

As noted here on Tuesday morning, most of the responses to BofA’s poll were gathered prior to the US-China trade truce, but you get the point: People are worried. And, again, it’s not “TDS.” It’s WTAFITGD.

The Bloomberg article linked above quoted Macquarie’s Thierry Wizman who said, “The view of the US as a ‘full faith and credit’ counter-party won’t completely return soon.”