When dollar wobbles: Trump, markets, end of US exceptionalism Opinion by Financial Times

In a sharp and timely analysis published by Financial Times, the paper explores how US President Donald Trump has, against expectations, overseen a significant decline in the US dollar. While many doubted his ability to weaken the world’s most powerful currency, a cocktail of radical uncertainty and institutional erosion under Trump 2.0 has led to a 7 per cent drop. The piece raises critical questions about the future of American manufacturing, global investment patterns, and the fading myth of American financial invincibility.

Trump’s original campaign promise of reviving American industry through a weaker dollar has, ironically, been partially fulfilled, though likely not through deliberate policy precision. Instead, growing distrust in American institutions and political unpredictability has shaken international confidence, turning global investors into reluctant currency speculators.

During the period from 2010 to 2024 — dubbed the era of "American exceptionalism" — US investors saw little reason to hedge against currency fluctuations. The strength of Big Tech and a rising dollar made foreign exposure seem unnecessary. As a result, most portfolios remained overwhelmingly domestic. For instance, Morgan Stanley’s Jim Caron notes that many US investors hold as little as 3 per cent of assets abroad.

Meanwhile, international investors benefited from a 40 per cent climb in the dollar, but recent shifts have caught many off guard. According to BNP Paribas, pension funds in the Netherlands and Denmark have reached record-low hedging levels, leaving hundreds of billions of dollars in exposure unprotected. Eurozone pension funds alone are estimated to hold $770 billion in unhedged dollar-denominated assets — a vulnerability now magnified as the dollar weakens.

The implications are already showing. Although US stocks have rebounded since an April tariff shock and pushed the S&P 500 back into positive territory, the returns look far less appealing when translated into euros — with a net 7 per cent loss so far in 2025. This devaluation reflects not just economic projections but also a broad erosion of trust in the US political and financial system. The dollar’s reserve currency status is no longer the shield it once was.

On the other side of the Atlantic, European equities have seen a boom. Germany’s fiscal stimulus and a dovish European Central Bank have contributed to strong performance, which returns even brighter when measured in dollars. For US investors willing to diversify abroad, the rewards have been significant.

As concern mounts, investors globally are grappling with new currency-related risks. Canadian bank RBC reports that in countries like Australia, Canada, and particularly the Eurozone, currency volatility now makes up a growing portion of overall portfolio risk — reaching nearly one-third for euro-based investors.

Looking ahead, any widespread move to hedge dollar exposure could translate into massive market movements. RBC estimates a 5 per cent uptick in dollar hedging would prompt $2 trillion in dollar selling. While a steep drop in the dollar would boost US exports and asset attractiveness, the current trend is slower and more structural.

The verdict? A weaker dollar may not deliver the manufacturing renaissance Trump envisioned, but it is undoubtedly reshaping global investment strategy, exposing the limits of American exceptionalism in a new geopolitical era.

By Sabina Mammadli