The ‘Dollar Smile’

Stephen L.Jen and Fatih Yilmaz,
creators of the ‘Dollar Smile’ hypothesis

The Origination

The original Dollar Smile Framework was created over 20 years ago by Stephen Li Jen, our CEO and co-CIO, and Fatih Yilmaz, our co-CIO, who were at the time close-knit coworkers. Since then, countless investors throughout the world have utilised the hypothesis to explain the seemingly contradictory relationship between US economic growth and the value of the US dollar.

In this section, we explain how the Dollar Smile works and provide empiric examples that prove the veracity of the Dollar Smile framework over time.

Stephen Jen

Stephen Jen

CEO, CO-CIO and Co-Founder

Eurizon SLJ Capital

Fatih Yilmaz 242A3452

Fatih Yilmaz

CO-CIO and Co-Founder

Eurizon SLJ Capital

The Dollar Smile Explained

“What I observed is that the relationship between the value of the US Dollar and the growth rate of the US economy is non-monotonic, and as a result, uncertainty seems to be good for the US Dollar”

Stephen Jen, CEO, Co-CIO and Co-founder of Eurizon SLJ Capital

“At Eurizon SLJ Capital our focus is on establishing an intellectual partnership with clients that thrives on an open dialogue and understanding of their needs”

Fatih Yilmaz, Co-CIO and Co-founder of Eurizon SLJ Capital

What is the “smile” of the US Dollar?

Simply put, when the US economy significantly under- or out-performs the rest of its peers, the dollar tends to be strong and increase in value compared to other currencies. This means that, if there is a hard landing or even a crash in the US economy, the dollar could paradoxically rally.

The hypothesis, and the reference to the “smile”, is based on the fact that the dollar occupies a hegemonic position as international safe-haven currency, that, at least until now, has remained popular for capital transactions, even though the market share of the US economy as a proportion of the world’s economy has steadily shrunk for two decades. Let’s find out more.

Dollar smile Chart_new

Fear Mode (A)

USD strengthens due to global recession and risk aversion

When global markets underperform, a risk off scenario takes place, when investors seek safe-haven assets, like US Treasuries, for which they need dollars. Hence, the US dollar strengthens due to its higher demand, independently of the state of the US economy.

Gutter (B)

USD weakens due to US economic slowdown vs rest of the world economy

Due to poor performance as the US economy struggles in a weakened long-term economic trend, the US dollar starts to drop, as money flows back into riskier assets.

Greed Mode (C)

USD strength due to strong US economic growth

As the global economy rebounds and optimism returns, the US dollar appreciates and recovers. The US economy enjoys GDP growth and expectations of higher interest rates rise.


In summary, the more significantly the US economy lags or has a clear lead towards the rest of the world, the stronger the US Dollar tends to be. On the other hand, if the US economic modestly leads or lags, the USD tends to weaken.

The Dollar Smile Framework in action

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