Fund managers have pushed short positions on the US dollar to levels unseen since at least 2012, reflecting a growing conviction that political unpredictability and a shifting interest-rate outlook will erode the currency's safe-haven appeal.
The dollar index traded around 97.08 at the time of publication, down roughly 1.2% year-to-date and off more than 9% from its 2025 levels; it fell as low as 95.51 last month, a four-year trough. Bank of America’s latest fund manager survey found allocations to the dollar at their most negative in the bank’s records, while options flows on the CME show bearish bets now outnumbering long positions for the first time since late last year.
Asset managers point to two intertwined forces behind the pivot. First, large, long-term investors such as pension funds and sovereign wealth funds are increasingly hedging or reducing dollar exposure, shifting “real money” out of US assets to guard against further depreciation. Second, markets expect the Federal Reserve to cut rates later this year—consensus pricing currently implies a couple of easing moves—narrowing the interest-rate advantage that has supported the dollar against the euro and yen.
Executives at major firms echoed the data. Vanguard’s global rates head said recent volatility prompted a reassessment of the historically low levels of dollar hedging many investors maintained on US assets. JPMorgan Asset Management executives have been running short positions in recent weeks and say they see further room for dollar weakness as rate differentials compress.
Political signals are reinforcing market caution. President Trump’s nomination of Kevin Warsh for Fed chair briefly calmed fears about central bank independence, but reports that Trump has publicly pressured the nominee and threatened tariffs on several European countries over a dispute about Greenland have revived worries that US policy unpredictability could deter global capital.
The flavour of the market move is visible in derivatives: risk-reversal measures—used to gauge demand for protection against currency moves—show euro-call/dollar-put activity at extremes only previously seen during the pandemic and the market turmoil last April after the administration’s “reciprocal tariffs” announcement. Some fund managers also report capital repatriation, with overseas investors converting dollar holdings back into local currencies.
A weaker dollar matters beyond currency traders. Reduced demand for dollar assets can raise US borrowing costs, tighten financing conditions for dollar-denominated borrowers abroad, and lift commodity prices. For global investors, increased hedging demand raises the cost of holding US exposures, potentially accelerating a reallocation of cross-border portfolios and amplifying capital flows into currencies that are benefiting from the shift.