The US dollar has lost nearly 9% of its value in the past year, with yields on Treasuries remaining high despite a decline in the stock market. Analysts and economists attribute this trend to the increasing economic uncertainty generated by President Trump’s policies. The White House’s actions have led investors to flee the dollar, driving down its value.
While initial suspicions pointed towards Japan and China selling US bonds, experts now believe that these countries are not solely responsible for the dollar’s decline. Sources indicate that there is little evidence to support this theory, and instead, point to a broader global phenomenon where investors across all asset classes are withdrawing from the US due to uncertainty.
Japan has been dumping its foreign bond holdings, including US Treasuries, with $20 billion recently sold off. However, this move does not seem to be primarily driven by a desire to sell US bonds specifically. Rather, it’s an effort to diversify its foreign bond portfolio, which comprises a large portion of its investments.
Analysts at Goldman Sachs disagree that hedge funds are behind the recent selloff in US Treasuries. They argue that there is no evidence to support this theory and that leveraged unwinds may have played a role in the market volatility. However, it’s also possible that hedge funds added fuel to the fire by liquidating their US bond holdings to raise cash.
The root cause of the dollar’s decline lies in the increasing uncertainty surrounding Trump’s economic policies. As long as the White House continues to generate economic uncertainty, investors will continue to flee the dollar. This trend has already started showing up in shipping routes, with an increase in “blank sailings” to the US due to tariffs restricting trade.
Experts predict that the dollar will continue to decline as long as the trade war persists, and Goldman Sachs believes that this trend has room to run. The sell-off of US assets is not unique to currency markets; it’s a global phenomenon where investors are seeking safe havens and diversifying their portfolios.
Source: https://fortune.com/article/why-is-us-dollar-sinking