The US’s aggressive stance on trade, taxation, and immigration has heightened policy uncertainty, raising stagflation risks and diminishing the investment appeal of US assets. While the US remains dominant in capital markets and technology, investors are reassessing exposures and increasingly hedging USD risk as correlations shift and the USD smile falters.
The dollar faces structural downside. Fast money has gone short, and real money is gradually diversifying, most notably among reserve managers. Fiscal deficits and floating ideas like taxing foreign asset holders further undermine confidence in the USD’s safe-haven status.
Though demand for Treasuries remains, persistent deficits require sustained foreign interest. The USD’s depreciation will be erratic, shaped by shifting policies and geopolitical dynamics. Alternatives are gaining ground: EUR benefits from deeper fiscal integration; JPY and CHF remain risk havens despite debt concerns. EMFX performance is increasingly idiosyncratic, with LatAm and TRY showing resilience. USD weakness is the dominant but not exclusive driver.
For our latest FX views, drivers and forecasts for the USD, EUR, and the rest of G10 FX, LatAm FX, CNY and TRY see our FX Insights.