NEW YORK, Feb. 17, 2026 — The U.S. dollar may be poised for a near-term rebound after four consecutive months of losses as investors reassess their positions on expected Federal Reserve rate cuts. Market participants have built substantial short positions against the greenback, and some analysts now argue the currency may be oversold.

The dollar index, which tracks the currency against a basket including the euro and the yen, has fallen from multi-year highs reached late last year. Traders have increasingly priced in multiple Fed rate cuts this year, reflecting moderating inflation and slower economic growth. That expectation has reduced the appeal of dollar-denominated assets relative to other currencies, prompting capital to flow abroad.

However, recent economic data in the United States have shown resilience in consumer spending and parts of the labor market. Analysts say that if growth remains firm, policymakers may move more cautiously than markets currently anticipate. That could trigger short covering in the dollar as traders adjust positions built around aggressive rate cuts.

Shorts are at Extreme Levels

Data tracking leveraged funds indicate net short positions against the dollar have expanded sharply. When markets become one-sided, even modest changes in economic data can force rapid position adjustments.

Heavy Short Positions Heighten Rebound Risk: Market participants have bet heavily against the dollar, leaving positions highly concentrated. Analysts note that such crowded trades increase vulnerability to sudden reversals. If economic data come in stronger than expected or if Fed communications signal a slower pace of cuts, traders may rush to cover shorts, triggering a near-term bounce in the currency.

Market Sentiment Signals Potential Correction: Sentiment indicators suggest bearish positioning has become entrenched. Surveys of investor outlooks show many expect further dollar weakness, which could intensify short-covering activity once conditions shift. Historical patterns indicate that extreme bearish sentiment often precedes corrective rebounds, reinforcing the view that the dollar could recover in the near term.

Fed Rate Outlook Remains Crucial

The direction of U.S. interest rates continues to drive currency movements. Traders have widely priced in several rate cuts, but recent readings suggest that growth may be more resilient than expected. Even a modest adjustment in the rate outlook could make dollar assets relatively more attractive, supporting the greenback against lower-yielding peers.

Analysts caution that the longer-term path of the dollar will depend on both U.S. policy and relative performance of other major economies. For now, near-term positioning and reassessment of rate cut bets are likely to dictate market moves.

Global Policy Shifts Influence Dollar

Developments abroad also play a role. The euro has benefited from shifts in expectations at the European Central Bank, while the yen has firmed amid speculation about changes to the Bank of Japan’s ultra-loose policy.

If foreign central banks move toward easing faster than anticipated, their currencies could lose momentum, indirectly supporting the dollar. In addition, the greenback remains the world’s primary reserve currency, and geopolitical or financial uncertainty can draw investors toward U.S. assets, reinforcing near-term demand.

Technical Indicators Point to Short-Term Rebound

From a technical perspective, analysts note that momentum indicators suggest the dollar may be oversold. In previous cycles, similar readings have preceded short-term recoveries. Combined with crowded positioning, these signals indicate the market could be set for a corrective bounce.

Investor surveys also show that many expect further dollar weakness. When sentiment becomes heavily skewed, even incremental surprises in data or policy rhetoric can trigger sharp moves.

While the dollar’s long-term trend will continue to depend on the Fed’s policy trajectory and relative global growth, the combination of stretched short positions, resilient economic data, and shifting rate expectations suggests the currency may be ready for a near-term rebound.