April 11, SINGAPORE Donald Trump’s audacious attempts to change world trade are sending ripples across currency markets, undermining the long-held faith in the U.S. dollar and causing investors to reconsider their plans. Holders of dollar-denominated assets—worth tens of trillions—are actively looking for strategies to protect their portfolios against currency risk for the first time in decades.
The dollar’s position as a pillar of stability meant very little of the $33 trillion put in U.S. markets was insured against currency fluctuations until today. That complacency could be ending.
The dollar and U.S. Treasuries—usually safe havens in times of crisis—suffered most from the consequences of the U.S. President’s retaliatory trade tariffs, causing this week’s selloff to hit hard. As domestic and foreign investors both pulled back, Treasury yields spiked and the dollar dropped significantly vs major currencies including the euro, yen, and Swiss franc. For the first time in almost two years, the dollar index—which monitors the greenback against six major rivals—fell below 100.
“The U.S. has long stood for stability—central bank independence, the rule of law, a strong economic base,” Vis Nayar, Chief Investment Officer at Eastspring Investments, said. “But those pillars are cracking. A major engine of expansion, immigration is declining. Essentially, tariffs are tax increases. The present government obviously prefers a weaker currency. For unhedged investors, that’s a worrisome combination.
Though it only makes up roughly 26% of world GDP, the United States draws more than one third of all equity investments, proving the confidence in its financial system. Foreign investors had $33 trillion in U.S. stocks and bonds by the end of 2024, including $14.6 trillion in debt and the balance in shares.
Although equities investors in higher-yielding areas often forgo hedging because of the growth potential, bond investors lack that luxury. Their smaller returns imply that even minor currency changes could greatly affect profitability.
The pressure is rising given the recent volatility. Investors might have to start hedging—using derivatives to trade dollars for their own currencies—or perhaps start leaving U.S. markets entirely.
Exante Data claims that even a little one percentage point increase in hedging activity might cause up to $320 billion in dollar selling. A surge of currency swaps involving trillions of dollars might result from 10 to 15 point increases in hedging ratios, as many analysts currently forecast.
The message is clear: if the dollar’s decline persists, the period of unhedged optimism may be approaching a rapid conclusion.
