In May, global asset managers significantly increased their exposure to the U.S. dollar, marking the largest bullish dollar positioning in 19 years, according to the latest Fund Manager Survey (FMS) by Bank of America $BAC. The sudden shift in sentiment comes in the wake of a fragile but impactful 90-day trade ceasefire between the United States and China, aimed at de-escalating mounting tensions that have cast long shadows over global financial markets.
The interim truce was brokered during diplomatic talks in Geneva over the weekend and included a temporary rollback of mutual tariffs, allowing markets to recalibrate after months of uncertainty fueled by erratic trade policy and unpredictable tariff escalations from the U.S. administration under President Donald Trump.
Despite concerns surrounding the broader outlook for the U.S. economy, fund managers saw an opportunity in the dollar’s safe-haven appeal amid lingering global volatility. While trade relations remain delicate, the latest truce has offered short-term relief, triggering a tactical reallocation across portfolios toward more defensive and dollar-denominated assets.
Bank of America’s survey results point to a growing disinterest in U.S. equities, even as demand for the dollar soars — a divergence that reflects the complexity of current investor sentiment. Managers appear to favor liquidity and currency stability over longer-term risk assets, with equity allocations remaining historically light despite the cooling of trade hostilities.
Flight to Safety: The dollar remains the world’s preferred safe-haven currency, particularly in times of geopolitical ambiguity.
Trade Policy Volatility: Unpredictable trade decisions have pushed managers to prioritize liquid, stable instruments.
Interest Rate Differentials: Continued divergence between U.S. and global interest rates supports the dollar’s yield appeal.
Temporary Tariff Easing: The 90-day truce reduces immediate risk, allowing room for dollar appreciation without broader market rotation.
While the dollar sees renewed favor, investor confidence in U.S. growth assets remains muted. The trade ceasefire, though welcomed, is widely perceived as temporary and fragile. As a result, fund managers are positioning portfolios cautiously — balancing liquidity, currency strength, and defensive exposure.
The shift away from U.S. equities, in particular, underlines the skepticism that the underlying trade dispute has been meaningfully resolved. Investors are preparing for further disruption unless a more permanent agreement is reached between the two economic giants.
Dollar Exposure at Multi-Year Highs Net long positions in the dollar reached their highest since 2005, reflecting confidence in its resilience despite broader concerns.
Equities Underweighted Equity allocations, particularly in the U.S., remain underweight, signaling lingering doubt about corporate earnings and macro stability.
Preference for Cash and Bonds With volatility still elevated, managers have boosted holdings in cash and fixed income instruments.
Emerging Market Skepticism Exposure to emerging markets remains cautious due to concerns over spillover effects from U.S.-China trade dynamics.
Commodities Neutral Allocation to commodities, including gold and oil, has remained neutral amid mixed signals from inflation and global growth.
While the trade truce has cooled tensions and boosted the dollar, it offers no guarantee of long-term stability. The next few months will be critical, as negotiations resume and global markets remain sensitive to headlines and policy shifts. For fund managers, the priority appears to be managing risk, ensuring liquidity, and remaining agile in the face of unpredictable geopolitical developments.
As a result, the dollar’s strength reflects not just confidence in U.S. fundamentals but also a lack of appealing alternatives — a sentiment that will persist until more durable resolutions emerge in global trade relations.
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