Unpredictable policy moves by the Donald Trump administration are driving global investors out of the U.S. currency, pushing sentiment on the dollar to its most pessimistic level in 14 years, according to fund manager surveys and derivatives positioning.
The dollar has already shed 9% over the past year and is down a further 1.3% this year against a basket of major currencies including the euro and the pound, hovering near a four‑year low, the Financial Times reported on Feb. 16.
A Bank of America survey published on Feb. 13 showed fund managers’ dollar exposure has fallen below the trough hit in April last year, when Trump stunned markets with his announcement of “reciprocal tariffs.” Dollar positioning among respondents is now the most negative since 2012, the earliest point for which comparable data are available.
Options data from CME Group underline the shift. So far this year, wagers on further dollar declines have outstripped bets on gains, reversing the pattern seen in the fourth quarter. Positions against the dollar versus the euro have reached extremes last seen during the COVID‑19 pandemic and in the immediate aftermath of Trump’s tariff threats last April.
The move reflects a broad effort by large institutions, including pension funds, to diversify risk and pare back dollar holdings in anticipation of continued weakness in the U.S. currency.
“The volatility of the past year has led investors to question the historically low levels of dollar hedging they have maintained on U.S. assets,” said Roger Hallam, global head of rates at Vanguard.
Iain Stealey, chief investment officer for global bonds, currencies and commodities at JP Morgan Asset Management, who has recently added to short‑dollar positions, told the FT: “We still see an environment where the dollar could weaken further from here.”
Although U.S. interest rates remain higher than those in the euro area and Japan, that advantage is expected to erode if the Federal Reserve delivers the two rate cuts markets are pricing in for this year.
Trump’s approach to monetary policy and foreign affairs is amplifying investor unease. The FT said his aggressive stance overseas and public pressure on institutions such as the Fed are undermining confidence in the United States’ traditional role as a safe haven for global capital.
Kevin Warsh, Trump’s nominee for Fed chair, was initially viewed as an orthodox pick who might reassure markets about central bank independence and curb fears of politically driven rate cuts. But Trump has already signalled the pressure Warsh could face, telling NBC News that Warsh “wouldn’t have gotten the job” if he had supported higher interest rates.
Bank of America analysts noted that Warsh’s nomination “has not led to a recovery in dollar demand or optimism about U.S. assets,” underscoring how political risk is overshadowing any comfort investors might have taken from his reputation.
Concerns about capital flight from U.S. markets intensified last month after Trump threatened military action and additional tariffs against NATO allies, coupling those remarks with a claim that he wanted to merge Greenland with the United States. The comments, dubbed a “Greenland shock” by some market participants, have added to perceptions of policy unpredictability in Washington.
U.S. Treasury Secretary Steven Mnuchin has attempted to calm nerves, saying he is “not worried at all” about foreign investors dumping U.S. assets. Yet several fund managers suggest outflows are already underway.
“There is an increasing flow of remittances from overseas dollar holders repatriating capital back into their home currencies,” Caroline Houdril, a multi‑asset fund manager at Schroders, told the FT, highlighting a shift that could keep pressure on the dollar if political and policy uncertainty persists.
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