OPINION: Markets start hedging against the dollar as trust in US policy erodes

The US dollar’s long-standing role as the anchor of the global financial system is coming under renewed strain, as investors reassess the reliability of American economic leadership amid political shocks, trade aggression and mounting geopolitical risk.

Nigel Green, the chief executive of deVere Group, said the intensifying dollar sell-off this week is a signal that markets are reassessing the credibility of US economic leadership. His comments followed remarks by US President Donald Trump signalling indifference to the currency’s recent slide, a stance that has unsettled currency markets already on edge over erratic policymaking.

The dollar fell 1.3 percent against a basket of major currencies, sinking to its lowest level in four years. The euro rose 1.4 percent to $1.204, sterling climbed 1.2 percent to $1.384, and the yen strengthened to ¥152.3 per dollar, extending a three-day rally as traders reacted to Trump’s comments.

“Currency markets are flashing red. The dollar sits at the centre of the global financial system, and moves of this scale signal a serious loss of confidence in America’s policy direction,” Green said.

He warned that Trump’s public dismissal of the sell-off had amplified investor anxiety rather than calmed it.

“President Trump’s dismissal of the dollar’s fall alarms investors. FX markets trade credibility and discipline. When leaders and policymakers appear unconcerned about sharp declines, traders assume volatility will persist.”

The immediate market reaction reflects deeper concerns about US macroeconomic risk. Green said the current sell-off is part of a broader recalibration of how investors price American assets.

“Aggressive fiscal expansion, unpredictable trade policy, and sudden political interventions create uncertainty over growth, inflation, and capital flows. Currencies price risk immediately, and, as we’re seeing in real-time, the dollar is paying the price.”

While Europe and the UK face their own structural challenges, Green said relative stability has become a decisive factor for capital flows.

“Europe and the UK face structural challenges, but relative stability matters more than perfection. Investors always compare policy paths, and the dollar’s path looks increasingly volatile.”

The yen’s rise adds another signal that markets are seeking shelter from US policy turbulence. “The yen remains a classic hedge in periods of policy uncertainty. Strength toward ¥152 per dollar signals global investors are hedging against policy turbulence in Washington,” Green said.

Beyond short-term currency moves, longer-term pressures are also building. Green pointed to rising concerns over US debt issuance and fiscal discipline.

“US debt issuance remains heavy, and fiscal discipline looks secondary to political messaging. FX markets punish that dynamic by demanding a higher risk premium.”

Trade policy remains another pressure point.

“Tariffs raise costs, squeeze margins, and stoke inflation. When policy shifts are abrupt or poorly communicated, the currency absorbs the shock first. Investors discount the long-term drag on growth and trade,” he said.

These market jitters are unfolding against a backdrop of broader geopolitical and structural change. Trump’s confrontational stance toward allies, combined with territorial rhetoric over places like Venezuela and Greenland, has prompted warnings of a deeper rupture in the global order. Former Canadian prime minister Mark Carney has described the moment as a “rupture in the world order”, as alliances that underpinned post-war stability come under strain.

At the same time, questions are intensifying about the durability of the petrodollar system, the decades-old arrangement that tied global oil trade to the US currency. Established in the 1970s after the collapse of the Bretton Woods system, the petrodollar helped preserve dollar dominance by ensuring global demand for US currency through energy markets and by recycling oil revenues into US Treasury securities.

Former Ecuadorian economy minister Andres Arauz has argued that this architecture created a vast dollar-denominated value chain with global reach. He has also pointed to growing unease over what he calls the “weaponisation” of the financial system through sanctions, asset freezes and reserve confiscations.

“Perhaps the most serious element that has accelerated this diversification has been the weaponisation of the hegemonic banking system,” Arauz said. “[Through] sanctions, through asset freezes, through confiscation of international reserves in many countries … [these] have definitely stirred things up and made countries reflect about the reliance on this previously thought of neutral system that is now, on the other hand a threat, to their national sovereignty and economic policies.”

These shifts are already visible in reserve data. The dollar’s share of global reserves has fallen from 71 percent in 2008 to just over 56 percent, while central banks have bought more than 1,000 tonnes of gold annually for three consecutive years. China has sharply reduced its holdings of US Treasuries while expanding yuan-based trade across Asia.

European Central Bank President Christine Lagarde captured this changing mood in 2025 when she said the global environment presented a clear opening for a “global euro moment”, as investors unsettled by unpredictable US policy trimmed exposure to dollar assets.

Against this backdrop, Green said reserve managers and institutional investors are quietly adjusting.

“Central banks and sovereign funds operate on trust, liquidity, and governance. Even incremental shifts out of dollar reserves can move markets when private capital mirrors the same trend.”

He added that portfolio strategies are evolving.

“Allocations to non-dollar assets are rising. Europe, Asia, selective emerging markets, commodities, and digital assets are gaining attention as investors hedge currency risk and seek diversification.”

Green stressed that the dollar’s reserve status is not collapsing, but its dominance is no longer unquestioned. “Reserve currency dominance relies on trust built over decades. Trust can weaken quickly when policy signals look inconsistent. Markets are testing long-held assumptions about US assets as the default safe haven.”

The risk, he warned, is that this period marks the start of a more fundamental shift. “A multipolar currency world is becoming more plausible. Investors already treat the euro, yen, and select emerging market currencies as partial hedges against US policy risk. Digital assets also enter strategic discussions at the margin.”

He concluded with a stark assessment of the current moment:

“The dollar will remain central to global finance, but its supremacy has been cracking in recent years, and this has been accelerated in recent days, with markets now seemingly building an escape route.”