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The dollar slid on Monday after Donald Trump threatened European allies with tariffs over his campaign to take control of Greenland, as the return of trade turmoil reawakened global investors’ concerns about their massive exposure to US assets.
The euro gained 0.4 per cent against the US currency by late afternoon in London, as did the pound, while stock markets fell on both sides of the Atlantic.
Fund managers said the dollar’s decline reflected anxiety that the latest escalation of Trump’s trade war could encourage global investors to sell or hedge US assets — in a revival of a trend that fuelled a 9 per cent fall in the currency’s last year.
“[This is] another chipping away at the credibility of US institutions,” said Altaf Kassam, head of investment strategy for Europe at State Street Investment Management, adding that he expected further declines for the dollar this year.
The Swiss franc, a safe haven in currency markets, was one of the big winners on Monday, rising 0.6 per cent against the dollar.
Kevin Thozet, a member of Carmignac’s investment committee, said the French asset manager had been “dialling back” its dollar exposure because of US actions in recent weeks.
“The constant questioning of the rule of law in the US means that the euro has appreciated [against the dollar], even though US fundamentals are solid,” he said. “This suggests that investors view European assets as more of a safe haven than the US.”
Trump’s announcement last April of sweeping tariffs on US trade partners, coupled with attacks against the Federal Reserve, sparked turmoil on global markets. While US markets rebounded, the dollar stayed weak as foreign investors bought up hedges against further swings in the currency.
Some fund managers said the return of tariff turmoil could reignite 2025’s “Sell America” trade, where the US dollar, stocks and government bond prices fell in unison after Trump’s global tariffs war spooked foreign investors.
The move “adds to concern that the US administration’s behaviour is detrimental to the privileges afforded to them by markets”, said Jason Borbora-Sheen, a portfolio manager at Ninety One.
The Stoxx Europe 600 index fell 1.2 per cent on Monday, and Wall Street futures indicated a 0.9 per cent decline for the S&P 500 when US markets reopen on Tuesday after a public holiday.
Some analysts said there were signs that European investors are scaling back their exposure to US assets.
Francesco Sandrini, global head of multi-asset at Amundi, said he had met with institutional investors in Denmark in recent weeks, who said they are selling US Treasuries. “This discussion is becoming ideological, political, for some investors,” he added.
Christian Schulz, chief economist at Allianz Global Investors, said “the euro could benefit if European investors repatriate capital from the US”, adding it could also hurt US Treasuries and “thus increase pressure on the US administration as well”.
The comments echo bond giant Pimco, which said last week it was in a “multiyear period of some diversification” away from US assets in part due to the unpredictable policymaking coming from Washington.
Still, bond markets were largely untroubled by the weekend events, with the 10-year German bond yield flat at 2.84 per cent, and yields on gilts of the same maturity slightly higher at 4.42 per cent. Yields move inversely to prices.
Some investors said the lack of broader fallout in markets reflected an expectation that Trump might step back from the Greenland rhetoric, or strike some kind of deal at this week’s meetings of the global political and economic elite in Davos.
“We have seen plenty of bluster from Trump before,” said Mark Dowding, fixed income CIO at RBC BlueBay Asset Management, adding investors should “wait and see what actually gets implemented”.