For the US dollar, it is difficult to imagine a more adverse scenario than the full reopening of the Strait of Hormuz. Negotiations between Iran and Oman regarding the normalization of shipping threaten to increase oil supply volumes, which will inevitably drive down energy prices and, consequently, demand for the greenback as a safe-haven asset. Simultaneously, this neutralizes inflationary risks, pushing back the prospects of Federal Reserve monetary tightening. Compounding this, institutional investors are increasingly reverting to the “Sell America” strategy that dominated the market during the tariff crisis in April 2025.
The fundamental weakness of the dollar, persisting despite high Treasury yields and overtly “hawkish” rhetoric from several Fed officials, is causing serious concern among proponents of the US currency. Neel Kashkari is openly calling for an immediate rate hike, while Lisa Cook and Mary Daly have indicated they would support policy tightening in the event of any acceleration in inflation. Nevertheless, synchronized selling of the greenback and government bonds continues, with market participants placing the blame for this dysfunction squarely on Fed Chair Kevin Warsh and Treasury Secretary Scott Bessent.
Initially, Kevin Warsh adopted a hardline stance; however, the market quickly repriced his intentions, concluding that actual rate hikes would not materialize under the pretext that “the market itself will do the central bank’s job.” The situation was exacerbated following reports of regular consultations between Warsh and Donald Trump. This triggered a sharp decline in confidence in the institutional independence of the Fed. Investors fear that the Federal Open Market Committee (FOMC) will bow to political pressure from the White House, creating a highly unfavorable backdrop for those betting on a weaker EUR/USD.
The US Treasury is attempting to frame its coordinated currency interventions with Japan—which included recent euro sales—as a tool to support a “strong dollar” policy. However, a detailed analysis of the mechanics behind these operations reveals serious contradictions. Tokyo is not selling Treasuries directly; rather, it is using them as collateral under the FIMA (Foreign and International Monetary Authorities) repo facility to obtain US dollars, which are then deployed to sell yen. This facility has a daily limit of $60 billion and is a more expensive alternative to standard repo operations. Scott Bessent is already demanding that the Fed lift these restrictions. In effect, this means the US is essentially printing dollars to finance Japanese currency interventions.
Such operations lead to an expansion of the Fed’s balance sheet, which, in economic essence, is akin to quantitative easing (QE) and constitutes a fundamentally bearish factor for the dollar. However, the most critical issue here is the systemic contradiction. It is highly illogical for a regulator that declares a course toward monetary policy tightening to simultaneously resort to monetary stimulus via balance sheet expansion. It is equally paradoxical that Kevin Warsh, who advocates for shrinking the Fed’s balance sheet, is in practice sanctioning its growth. It is precisely this fundamental discrepancy between the regulator’s words and its actions that has become the primary driver of the global “Sell America” trade.
