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Donald Trump spent time in the campaign that advocated a weaker dollar, imagining that this would be the key to unlocking a great rebirth in US manufacturing.
We should give man their due. Few thought it was possible to reduce the most important currency in the world, pointing out the long -term domain of the United States over the economy and global markets. And yet, through the magic of the radical uncertainty and the erosion of the fundamental values ​​and institutions of the United States, it has achieved engineering of a 7 percent decrease. A master gambit.
If this helps at all with the effort to support the American industry, it is a long -term question. The bet at this time has to be “not really”, given all the other impediments to companies, especially foreigners, invest in people and teams in the United States in this era of greater uncertainty. But that is not the element in which investors are currently thinking. Instead, Trump has turned fund managers worldwide into foreign exchange merchants, they like it or not.
Many shares investors have barely thought about the risk of currencies for years. Why bother? During the era of American exceptionalism from 2010 to 2024, investors based in the United States put money overwhelmingly to work at home. They were riding the great technological wave until the vertiginal heights and having an opportunity close to zero that an explosion in unpredictable famous monetary markets could leave a brand in the value of their investments. Jim Caron de Morgan Stanley Investment Management tells me that many of its customers have only 3 percent of their inverted portfolios outside the United States, a proportion that is encouraging people to increase.
In other places, investors set up the same great technological wave, but also a soft rise of 40 percent in the dollar, to the weighted extent of the Federal Reserve trade.
It is difficult to discover the precise degree in which non -American investors had protected themselves against an attack of weakness in dollars in recent years. Obviously, each wallet is different, but coverage rates seem to be low. BNP Paribas analysis, for example, suggests that the coverage rates of dollars assets in the possession of Dutch and Danish pension funds have recently sunk or near registered minimums. The bank recognizes that the Eurozone pension fund industry has up to $ 770 billion in exposure to the dollar without charging.
Market movements so far in 2025 have focused the mind here. US actions have easily recovered from shock related to rates in early April, dragging the main index, S&P 500, in positive territory for the year so far. But that is in dollars. In Euro terms, the index has still decreased by more than 7 percent this year, since the dollar has fallen due to the expectations of the economic weakness of the United States, but also due to the wide evaporation of confidence in US institutions under Trump 2.0. Too much for the counterweight of the dollar reserve currency, which is fighting under the new regime.
Meanwhile, European actions work very well, partly due to the intentions of the new German government to spend problems, combined with a accommodative central bank. However, in terms of dollars, yield is even more brilliant, which allows investors based on dollars brave enough to venture abroad to amplify yields.
Now, analysts often say that the main question they receive from investor customers is how to manage the risk that the dollar can continue to fall and eat their portfolios.
Shares and bond investors know that the shares and bonds they buy can decrease and rise. (If they don’t, they probably should find another job). This remains the greatest risk to portfolios. But the RBC analysis of the Canadian Bank shows that the specific risk of the currency, as a portion of the general portfolio risk, is increasing worldwide outside the United States, especially in Europe, Australia and Canada, with the US dollar that represents the volume. For euros -based investors, foreign exchange movements represent almost a third of the total risk, far beyond the monetary sensitivity of US investors.
The way investors deal with this depends on where they are. It is easier, less expensive, to cover in larger and more actively operated coins, for example. But RBC recognizes that a 5 percent increase in dollars would add up to a value of $ 2TN for sale of dollars over time.
A massive and sudden fall in the dollar would be bad news for several reasons, but at least it would make assets and exports seem a bargain. But we are not there yet. On the other hand, the gradual and lasting weakness of the dollar is just another reason for investors to doubt that American exceptionalism can return and maintain a growing portion of future assignments at home.
katie.martin@ft.com
