Investors are reversing their negative positions on the U.S. dollar, which is poised for its first monthly gain of the year, driven by strong economic data and a belief that the Federal Reserve will maintain interest rates. This shift is causing a slowdown in the previously favored 'rest of the world trade' and impacting European and emerging market assets that had benefited from a weaker dollar outlook.

The dollar index has reached two-month highs, reflecting a broader market rotation towards U.S. equities and a decline in the euro's value. Analysts suggest that this trend may halt the momentum of European stocks, which had previously outperformed U.S. markets. The potential for a sustained dollar recovery could pose challenges for global investors who had positioned themselves against U.S. assets.