President Trump’s trade policies and harsh rhetoric against China have pushed investors to start piling into assets outside of the United States. A different gauge shows the greenback lost about 9 percent between January 20—when Trump returned to the White House—and April 28, putting it on course for the biggest loss through the end of the month since at least 1973.

Speculative traders, including hedge funds and asset managers, increased their bets against the dollar in the week through April 22, according to the Commodity Futures Trading Commission (CFTC). Speculative traders are the most short dollar they have been since September 2024. Longer-term investors can also be expected to join the reallocation of funds away from the U.S., and since they change their strategies less often, their departure would mean weaker dollar for longer.

Ultimately, said Chandan, Trump administration policies are undermining U.S. exceptionalism, which was a theme that supported the market in years past. “The two pillars of U.S. growth—immigration and fiscal—are tightening,” she said. “Real policy rates in the U.S. are turning more negative because tariffs are inflationary.”

U.S. Treasury yields turned lower across the curve today, with 10-year yields dropping to 4.2 percent as traders react to U.S. trade policy updates and look for more guidance from reports this week on the U.S. labor market.

Europe Is Benefiting

The euro will be one of the main beneficiaries of more dollar weakness, Chandan added. The euro has risen more than 10 percent against the dollar this year, at par with gains by the Japanese yen and the Swiss franc. The team at JPMorgan boosted their euro forecast on lower dollar expectations after their earlier target was reached “much quicker than anticipated,” Chandan said. They now see the euro at 1.20 against the dollar at the end of the year, up from 1.14. This is the second upgrade to their euro forecast; the team lifted euro outlook in early March after Germany agreed to massively increase fiscal spending.

Meanwhile, the rotation out of U.S. assets has also boosted the pound. This effect has been strong enough to overshadow the potential for more interest rate cuts from the Bank of England (BOE), which typically reduces bond yields and makes the pound less attractive. While some figures have pointed to a stronger UK economy, signs that inflation is easing have led traders to boost bets that the BOE will cut rates further this year. Goldman Sachs remains optimistic that the pound will keep strengthening, forecasting a rise to 1.39 per dollar in 12 months—a level last seen in 2021.

“We think the thesis for further upside in cable remains intact, with sterling benefiting from the broader strength in the European FX complex we expect this year, as well as from the lower vulnerability of the UK economy to the U.S. tariff shock,” Goldman Sachs strategists led by Kamakshya Trivedi wrote in a note.

The pound may also be getting a lift from hopes for closer economic ties between the UK and the European Union (EU). That’s ahead of a May 19 defense summit between officials in London, which Germany’s ambassador to the UK said could eventually lead to a broader review of post-Brexit relations. “Closer UK-EU trade relations can lead to a more favorable UK business investment outlook, which bodes well for sterling,” said Elias Haddad, a strategist at Brown Brothers Harriman & Co.

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