Pressure on the Dollar Fuels Fears of a New “Sell America” Wave

Europe’s pushback against Trump’s Greenland ambitions intensified overnight, enough to accelerate declines in the U.S. dollar and send futures on U.S. government bonds lower. The negativity stemming from President Trump’s destabilizing policies appears to at least create reluctance among investors to increase exposure to U.S. assets. There are clear signs that traders are positioning for a revival of last year’s “Sell America” theme.

In many ways, this narrative was overly sharp, even at the time. The largest dollar decline in the first half of the year since 1973 was also driven by investors beginning to price in risks suddenly associated with U.S. assets—risks few had anticipated—while foreign holdings of U.S. government bonds and equities rose significantly to record levels.

The Bloomberg Dollar Spot Index fell 0.3% on Monday, marking its sharpest drop since December 23, with the dollar weakening against all major developed-market currencies. The broader decline could have been even larger if not for Japan’s election announcement, after which USD/JPY almost fully erased a drop that had reached 0.4%.

Europe holds roughly $10 trillion in U.S. assets, so if the Greenland situation escalated and serious steps were taken to reduce those positions, the impact would be enormous. However, this appears highly unlikely, as Sebastian Boyd previously noted that any organized sell-off or even official pressure to sell is not realistic. Nevertheless, as relations between Europe and the U.S. deteriorate, demand for the U.S. dollar is unlikely to recover sharply.

While Skylar Montgomery Conning argues that the dollar would benefit from a U.S.-EU trade conflict, the greenback has actually been a losing position under Trump—a trend likely to continue if tensions rise further due to the relative attractiveness of U.S. assets deteriorating. This does not mean that flows into U.S. assets will dry up—they certainly have not under President Trump, as the chart above shows.

Sharp and often contradictory political moves by the president, as well as his campaign to shake up the global financial system, are causing investors to raise risk premiums on U.S. assets, with the dollar acting as the main channel for these movements.

The revival of tariffs as a tool could have a particularly strong impact on assessments of the U.S. economy’s prospects, with German research concluding that Americans bear the bulk of the burden from these levies.