Big America hedge affects dollar's global standing
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Maura Losch/Axios
Some Wall Street veterans say appetite for the U.S. dollar is waning in ways not seen in years.
Why it matters: It could be the great unwind of the greenback binge of the past decade, when exposure to America was the world's safest — and a highly rewarding — investment. Now investors are hedging those bets.
What they're saying: "We're in a new era, where global investors no longer reflexively buy dollars or treasuries at the first sign of trouble," Jason Thomas, the head of global research and investment strategy at Carlyle, tells Axios.
- Themos Fiotakis, a currency strategist at Barclays, puts it this way: "Since April, there's this trend that investors are trying to reduce the amount of dollar exposure. Some of that is a little bit of normalization, but there is a sense they need to go even deeper."
By the numbers: The U.S. dollar index is down more than 10% against a basket of other currencies this year, at a three-year low. The speed of the decline is the story.
- The dollar index peaked when President Trump was inaugurated. But it has since "fallen farther, faster than in any year since the U.S. abandoned fixed exchange rates," Karl Schamotta, a currency strategist at payments firm Corpay, tells Axios.
The intrigue: The drop is among the hints of some "America-proofing" underway.
- There was an exodus out of U.S. long-term bond funds in the second quarter, according to calculations by the Financial Times, the biggest flight since the pandemic onset, which signals less confidence in the nation's economic and fiscal fate.
- Bearishness on the U.S. dollar hit a 20-year high among global fund managers in May, according to Bank of America.
- More vendors want trade transactions denominated in local currencies, not the U.S. dollar, Paula Comings, head of currency sales at U.S. Bank, told Bloomberg, a sign that "could speak to the dollar's reputation."
The big picture: Among the investor turn-offs are Trump's volatile trade policy, stagflation fears, and exploding deficits.
- Add to the list a Wall Street Journal report that Trump could announce a new Federal Reserve chair this summer, well before Jerome Powell's term ends next year.
- If the pick is willing to push rates lower at Trump's whim, it would almost certainly strip America of its reputation as the global anchor of stability.
- Off the fear list, though, is a proposal that could have constrained foreign investment, which Treasury Secretary Scott Bessent says he is aiming to remove from Trump's signature tax legislation.
Threat level: The global economy runs on the U.S. dollar, but the chaos and uncertainty is reviving questions about how long (or whether) the reign will continue.
- "I have been getting a lot of inbound from clients about the euro as an alternative," Fiotakis says. While there is plenty of "anti-dollar" sentiment, no other currency has the might to replace it, he says.
- "There is a sense of unease with how many dollars they have, but that is not something that is confirmed by anything besides the the price," he adds.
What to watch: Wall Street is still spooked by the immediate"Liberation Day" aftermath, which showed investors flee U.S. assets, selling government bonds and dollars.
- "It's the sort of pattern you'd normally see in a stressed, emerging market," Adam Slater at Oxford Economics tells Axios, not in the world's economic juggernaut. "It's a little warning of what could come if policies deteriorate a lot further."
