The U.S. dollar, the world’s leading reserve currency, is experiencing heightened turbulence as unpredictable White House policy signals and concerns over Federal Reserve independence revive so-called “Sell America” trades.
While many analysts expect the greenback to weaken further over time, sudden rebounds have proven just as disruptive for markets as sharp declines, catching traders off guard.
After sliding nearly 2% in a single week in January to its lowest level in four years, a dollar index tracking the currency against major peers rebounded sharply. That reversal triggered significant volatility across commodities and broader financial markets.
Below is a closer look at how rising dollar uncertainty is rippling through global assets.
1. Metals markets hit by sharp reversal
The dollar’s rebound over the past two sessions followed Donald Trump’s decision to nominate former Federal Reserve governor Kevin Warsh to replace outgoing Fed Chair Jerome Powell, sparking a sharp sell-off across metals markets.
Gold, which posted its strongest monthly performance in more than 50 years in January, fell 5% on Monday after suffering its steepest daily decline since the early 1980s in the previous session. Prices later recovered modestly on Tuesday.
According to Societe Generale, traders had crowded into a popular currency debasement trade that relied on a steadily weakening dollar driven by Federal Reserve independence. That narrative unraveled rapidly, exiting metals markets “at lightning speed,” the bank said.
Silver and copper also retreated sharply from recent record highs, while Brent crude oil is heading for its worst weekly performance in nearly two months after surging 16% in January.
2. Currency volatility intensifies
The nearly $10 trillion-per-day global foreign exchange market has grown noticeably more volatile.
A measure of expected three-month volatility for the euro-dollar exchange rate—the world’s most heavily traded currency pair—climbed to its highest level since July last week.
According to Capital Economics, the dollar has become increasingly disconnected from traditional valuation benchmarks, such as interest rate differentials between the U.S., Japan, and Europe.
Barclays has identified a growing U.S. policy risk premium embedded in the dollar, meaning the currency is now influenced more by White House rhetoric than by standard economic and growth forecasts. This shift could make dollar-denominated stocks and bonds more difficult for foreign investors to price and hold.
“The key issue is whether confidence in the U.S. asset base starts to erode,” said Barclays global head of FX and EM macro strategy Themos Fiotakis.
3. ‘Sell America’ concerns resurface
Foreign investors currently hold nearly $70 trillion worth of U.S. assets, more than double the level of a decade ago as Wall Street equities surged. European asset managers are now reassessing their exposure.
A weaker dollar typically supports U.S. equities by boosting the value of overseas earnings and often pushes Treasury prices higher. However, analysts warn that this relationship may break down if the dollar’s decline becomes disorderly.
Analysts at Bank of America said a chaotic dollar sell-off—defined as a monthly drop of around 5%—could trigger a sharp liquidation of long-dated U.S. Treasuries and significantly tighten domestic financial conditions.
The bank also flagged the risk of a broader debasement trade, in which the dollar weakens alongside U.S. assets rather than cushioning them.
4. Investors move to hedge risk
Janus Henderson multi-asset manager Janus Henderson’s Oliver Blackbourn said he has shifted portfolios toward a more neutral stance, reducing exposure to equities and gold over the past two weeks.
He noted that increased dollar volatility driven by policy uncertainty is likely to spill over into other asset classes, warranting a more defensive approach in the near term.
Meanwhile, John Stopford, head of managed income at Ninety One, said he has added both put options that profit from rising Treasury yields and call options that benefit if yields fall, aiming to hedge uncertainty over interest rate direction.
Hedge funds, for their part, have begun pulling back from North American assets amid rising trade tensions and policy unpredictability.
