Should we be contrarian on the dollar?

This is one of the big stories of 2025 on the markets: the reallocation of international investors' portfolios. The US trade policy and abysmal deficits are leading to reduced exposure to US assets: this is the "sell America trade." But while selling the dollar has never seemed so consensual, isn't it time to reposition ourselves to buy?

One of the most significant market movements this year has been the decline of the dollar. Since January 1, the dollar index (the dollar against a basket of reference currencies) has fallen by almost 10%.

This movement can be explained by a rebalancing of international investors' portfolios. Indeed, from Donald Trump's erratic trade policy to concerns about the deficit and attempts to undermine the rule of law, confidence has eroded. As a result, investors are reducing their exposure to US assets (after years of overweighting them). This is the "sell America trade."

So there are plenty of good reasons to sell the dollar. And that is precisely the problem. Anyone who has followed the financial markets for a long time knows that when there is too much consensus, the opposite is often true. As the famous saying goes, "consensus is always wrong." The rationale behind this is that when everyone is positioned in one direction, there are no more buyers or sellers to prolong the movement.

And we may be in this situation with the dollar. Looking at the latest edition of Bank of America's monthly Fund Manager Survey, the dollar is the most underweighted asset in 20 years. This reflects a strong bearish consensus, for all the reasons we mentioned earlier.

The last time such a consensus formed around the dollar was last fall, in the wake of Donald Trump's election. At that time, amid a narrative of extreme American exceptionalism, everyone saw the dollar continuing to rise and the eurodollar returning to parity. We know what happened next...