With the U.S. dollar trading 15–20% above its long-term fair value, analysts at KKR & Co. Inc. believe the era of dollar-fueled outperformance in U.S. assets is likely close to an end, as global investors begin shifting away from a decade of American exceptionalism.
Is The US Dollar Overvalued?
While the U.S. Dollar Index (DXY)—tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP)—has dropped 9% year-to-date, the greenback still appears significantly overvalued when viewed through a long-term lens.
In its latest May’s Global Macro Trends report, KKR showed that the real effective exchange rate of the dollar now sits at a 16.6% premium, as of May 2025.
This marks only the third time since the 1970s the greenback has crossed the 15% threshold. The last two times — in March 1985 and February 2002 — were each followed by prolonged bear markets for the dollar.
In 1985, the dollar reached a peak of 30.5% overvaluation before falling for a decade following the Plaza Accord. In 2002, the dollar peaked at 15.7% and slid into …