‘Dollar Smile’ Theory Suggests Weaker Dollar Ahead, According to Stephen Jen

Stephen Jen, CEO of Eurizon SLJ Capital, believes the U.S. dollar’s decline is just beginning. Concerns about the US economy and optimism about growth abroad have pushed the dollar to a three-month low, aligning with Jen’s long-held prediction of a weaker dollar. Jen’s “dollar smile” theory suggests the dollar gains during deep slumps or strong expansions but struggles during moderate growth. He argues the dollar is about 20% overvalued and expects a multi-year adjustment rather than a crash. Recent tariffs by the Trump administration haven’t stopped the dollar’s slide, and Germany’s plans for significant spending have further weakened it. Jen’s thesis rests on the idea that the US growth advantage will fade as government spending decreases. He believes the economy is resilient enough to handle reduced fiscal stimulus without severe damage. The dollar has fallen about 5% since peaking in January, and Jen expects this trend to continue.

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