(Bloomberg) – Betting against the dollar has been the dominant trade this year in the $9.6 trillion-a-day foreign exchange market, but the wager is starting to stumble.

The world’s primary reserve currency is around a two-month high even as the US government shutdown drags on, and traders in Asia and Europe say hedge funds are adding options bets that the rebound versus most major peers will extend into year-end.

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Overseas developments have been a key driver, with the euro and the yen falling abruptly this month. At the same time, comments from Federal Reserve officials urging caution around further interest-rate cuts have boosted the dollar’s appeal.

The longer the strength persists, the more painful it is for those sticking with calls for the greenback to take another leg lower. Among the bears: Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley.

The trend, if it continues, could reverberate across the global economy, for example making it harder for other central banks to ease monetary policy, pushing up the cost of commodities and increasing the burden of foreign borrowings in the currency.

A rapid rebound could derail some of the year’s most favored trades, knocking bullish expectations for emerging-market equities and bonds in the final quarter and also weighing on the shares of American exporters.

Count Ed Al-Hussainy at Columbia Threadneedle among dollar pessimists who have flipped their view. The portfolio manager went short at the end of 2024 when the greenback was still rallying as part of the so-called Trump trade after the US election.

Over the past month and a half he’s trimmed that stance by reducing exposure to emerging markets. For him it boils down to markets leaning too heavily toward Fed rate cuts given the resilience of the American economy.

“We have become a lot more positive on the dollar,” he said. “The markets have priced in a very aggressive series of cuts, and it’s going to be difficult to execute them without a lot more labor-market pain.”

The Bloomberg Dollar Spot Index is now up roughly 2% since mid-year, after its steepest first-half slide in decades. It’s gained 1.2% this week, the best performance in 11 months. In early 2025, after President Donald Trump held off on applying across-the-board tariffs once he took office, the greenback slid in part on the view that inflation would be tame enough for the Fed to resume lowering rates.