How can we weaken the dollar if the US economy is strong as a bull, the stock market is growing by leaps and bounds, and the stakes are higher than those of competitors? In the past, this alignment of forces spoke to American exceptionalism and led to a rally in the USD index. However, as soon as Donald Trump came to power, everything turned upside down. However, everything has a limit. And this circumstance inspires confidence in the “bears” on the EURUSD.
Tariffs and threats against the Fed’s independence were enough to launch the “sell America” strategy. However, it was not so easy to abandon the US securities markets. They are the largest, deepest and most liquid in the world. There is something to choose and earn money from. In addition, the question always arises, but what to replace?
Take China, for example. He has been getting rid of treasuries for a long time, but he does it extremely slowly and smooths the process by making purchases on behalf of Belgium. The acceleration of American sales will lead to a strengthening of the yuan, which will undermine the competitiveness of local manufacturers. Where to place the money received? China has strained relations with Japan, and Europe can easily join American sanctions. That leaves gold, but the market is so small that you won’t buy too much.
Many of the above-mentioned reasons formed the basis for the transition of foreign investors from “selling America” to “hedging America.” They continue to hold assets in portfolios and even buy assets issued in the United States, but at the same time they insure risks by dumping the dollar. This process was actively underway after the April tariffs of the White House. As a result, stock indexes rose rapidly, and the greenback weakened by 10%.
What was happening is clearly visible in the US Treasury bond market. Non-residents increased their holdings of treasuries to a record $9.4 trillion in November, however, the pace of purchases decreased in 12 months from $641 billion to $422 billion.
However, there is a limit to everything. Why waste money on risk insurance if the US dollar has stabilized in the second half of 2025 and risks rising in the first quarter amid a long pause in the Fed’s monetary expansion cycle? Hedging ratios may also fall, as they rose after America’s Liberation Day. And that’s a completely different story. Good for the greenback.
According to Credit Agricole, most of the negativity has already been taken into account in its exchange rate, so a positive will lead to a rally in the USD index, and bad news will not make it sink much.
