Most bearish on the US dollar in a decade! Institutions flock to hedge dollar positions

Fund managers' bearish stance on the US dollar has reached its highest level in more than a decade. Amid unpredictable US policy decisions causing heavy blows to the dollar, institutional investors are withdrawing from or hedging dollar assets at an unprecedented pace. According to the latest survey released by Bank of America last Friday (February 13), fund managers’ exposure to the dollar has fallen below last April's low, with their dollar positions at the most negative level since at least 2012. So far this year, the dollar has dropped 1.3% against a basket of currencies including the euro and the pound, on top of a 9% decline in 2025, now hovering near a four-year low. CME options data shows that since the start of this year, bets on shorting the dollar have exceeded bullish bets, reversing the situation of the fourth quarter of 2025. Bets on further depreciation of the dollar against the euro have reached levels seen only during the pandemic and last April when Trump announced the so-called “reciprocal tariffs.” Analysts point out that Trump’s aggressive geopolitical actions and pressure on institutions like the Federal Reserve have raised concerns about the US’s attractiveness as a global capital safe haven. Large asset management companies note that the dollar’s slide reflects the growing desire among real-money investors like pension funds to hedge further weakness or reduce their dollar asset exposure. Institutions Making Massive Adjustments to Dollar Positions Roger Hallam, Global Head of Rates at asset management giant Vanguard, says that some of the volatility in the past year has prompted investors to question their historically low hedge ratios on US assets. He added that this reassessment of US allocations and hedge positions is a “key driver” behind the recent dollar decline. Iain Stealey, International Chief Investment Officer at JPMorgan Asset Management, said the firm has established short dollar positions in recent weeks. Stealey specifically mentioned the outlook for carry trades, which were previously favored due to the dollar’s high interest return. He pointed out: “(The dollar) is not severely overvalued, but we see an environment where the Federal Reserve will continue cutting rates… The carry advantage will gradually disappear over time.” The market expects the Fed to cut rates twice this year, narrowing the interest rate gap with major economies such as the eurozone and Japan. Caroline Houdril, Multi-Asset Fund Manager at Schroders, said: “We are seeing an increase in capital repatriation as foreign holders of dollars shift capital back to their home currencies.” Policy Uncertainty Further Pressures the Dollar The initial nomination of Waller as Fed Chairman reassured many investors, as he was widely seen as an orthodox candidate likely to ease concerns about central bank independence. But Trump has already begun to pressure Waller, stating earlier in February that if Waller favors rate hikes, he “won't get the job.” Bank of America analysts pointed out that Waller’s nomination “has not translated into greater demand for the dollar, nor has it rekindled optimism about US assets.” The Greenland crisis in January this year heightened expectations that global investors might pull out of US assets, as Trump threatened to take military action and impose tariffs on NATO allies. Although US Treasury Secretary Besant later denounced the “idea that Europeans will sell US assets,” some management companies report capital outflows have already occurred. Lingering Concerns Over Currency Intervention Washington’s support last year for the Argentine peso against the dollar, as well as so-called “currency checks” on bank yen-dollar rates last month, has sparked concerns in the market that the US may plan to weaken the dollar. Trump commented in January that the dollar’s decline was “great,” further adding to the uncertainty. These remarks prompted Besant to state that the government is still pursuing Washington’s traditional “strong dollar policy” and does not intend to intervene in the foreign exchange market. Xavier Meyer, Chief Investment Officer at Aberdeen Group, said: “There are many within and around the government who think a weaker dollar will help US exports and promote broader reindustrialization.” He added that this is one reason the market is “taking so seriously” the prospect of a possible US-Japan currency intervention. Risk Warning and Disclaimer The market has risks, and investment should be made cautiously. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are appropriate for their specific situation. Any investment based on this article is at your own risk.