Wall Street’s De-Dollarization Shift: Short the Dollar, Not U.S. Assets — Hedging America with Precision

TradingKey - In April, a wave of “sell America” sentiment swept global markets, with rare simultaneous selloffs in U.S. stocks, bonds, and the dollar dominating headlines. Now, as Fed rate cuts loom and some of President Trump’s policies — including tariffs — show signs of softening, Wall Street analysts are rewriting the “de-dollarization” script into a more nuanced strategy: “Hedge America.” Investors are selling the U.S. dollar, but still buying U.S. equities.

The U.S. Dollar Index (DXY) fell over 10% in the first half of 2025, its worst first-half performance since 1973 — the weakest in more than fifty years. Yet, as of September 19, the DXY stands at 97.77, roughly unchanged from mid-year levels.

Beyond the dollar’s failure to continue weakening as expected, the record-breaking performance of U.S. stocks has overturned the short-lived “sell America” trade that emerged when President Trump announced his “reciprocal tariffs.”

Deutsche Bank, analyzing data from over 500 funds, recently found that inflows into dollar-hedged ETFs holding U.S. assets have exceeded inflows into unhedged U.S. equity funds — the first time this decade.

Deutsche Bank noted that this hedging behavior explains the strong stocks, weak dollar phenomenon: overseas investors may be returning to U.S. assets, but they don’t want exposure to potential dollar losses.

Citi agrees, arguing that so-called “de-dollarization” is actually driven by portfolio rebalancing and adjustments in hedge ratios, not a structural rejection of the dollar. Over the long term, there is no significant correlation between foreign investment flows and dollar performance.

Citi labeled the broader “de-dollarization” narrative a “mirage” — an idea lacking support from economic data. While the dollar index is down about 9% year-to-date, U.S. international balance-of-payments data shows no evidence of significant net selling of U.S. dollar-denominated assets.

Standard Bank strategists added:

“If there is speculation that the Fed is goosing the economy with rate cuts because of pressure from the White House, it would seem to make sense to love the US stock market and the front end of the Treasury market but to hate the dollar.”

JPMorgan put it bluntly:

“It’s not a ‘sell America’ moment .It’s a ‘hedge dollar’ moment.”

Outlook for the Dollar: Weakness Expected to Continue

Deutsche Bank, Société Générale, and State Street all expect hedging pressures to keep weighing on the dollar into next year.

JPMorgan said weak economic data has pushed the dollar below recent trading ranges, potentially triggering a new wave of currency hedging that could further accelerate dollar weakness.

Citi forecasts:

• EUR/USD could rise from current levels of 1.1750 to 1.20 by year-end
• USD/JPY could fall to 135 by end-2026, down about 9% from current levels