A further 10% decline could push DXY toward levels last seen during President Trump’s first term, adding to trader concerns about the dollar’s long-term viability.
Debt Burden and Credit Downgrade Undermine Dollar Confidence
Long-term dollar bears are gaining traction, as structural concerns grow louder. With the U.S. fiscal deficit projected to increase by $3 trillion to $5 trillion due to sweeping tax cuts, confidence in U.S. fiscal management is eroding. Deutsche Bank’s George Saravelos cited “diminished appetite” for U.S. assets and persistent high deficits as a mounting source of anxiety.
The recent Moody’s downgrade of the U.S. sovereign credit rating to “Aa1” from “Aaa” only deepened market unease. Although markets have so far absorbed the blow without major dislocation, the symbolic loss of triple-A status could further dent the dollar’s safe-haven appeal.
Foreign Investors Rethink Exposure to U.S. Assets
The dollar’s weakening status as a global hedge is prompting institutional reevaluation. BNP Paribas’ Peter Vassallo noted concerns among foreign investors that the dollar no longer provides the diversification it once did. Massive USD exposure in Asia—totaling roughly $2.5 trillion—adds to the potential for currency rebalancing.
As hedge ratios rise, selling pressure in forward markets could accelerate, especially if recent currency movements like Taiwan’s surge serve as a wake-up call. For now, firms like Robeco see no wholesale exit from dollar-denominated assets, but the risk is growing.
