The US dollar has fallen to its lowest level since 2022 amid rising doubts among investors about the sustainability of American economic policy. During Donald Trump’s second presidential term, the Bloomberg Dollar Index has decreased by nearly 12%, reflecting a significant outflow of capital from US assets.

A strategy known as “devaluation trading” is gaining traction in markets, where investors are reducing exposure to the dollar and dollar-linked instruments. The main factor exerting pressure is the unpredictability of White House policy. This includes threats of new tariffs, pressure on the Federal Reserve to cut interest rates, and abrupt foreign policy initiatives that affect relations with US allies.

Despite official statements affirming a commitment to a strong dollar, markets increasingly assume that a weaker currency is effectively viewed by the administration as a permissible tool for supporting exports. The president has previously stated that the current exchange rate level is “excellent,” further fueling these expectations.

Amid this backdrop, capital is being redistributed into alternative assets. Emerging markets have had their best start to the year since 2012, while the volume of hedging against further dollar weakness has reached record levels, indicating a rise in defensive strategies among investors.

“The era of automatic dollar accumulation is over,” PIMCO’s Pramol Dhawan said, characterizing current trends as a structural shift in investment regimes.

The dollar’s slide temporarily paused on Friday following reports of Kevin Warsh’s appointment as the next Fed chair. Despite his recent statements aligning closely with the White House’s position, Warsh is viewed by markets as a more conservative figure who is less inclined to aggressive rate cuts compared to other candidates.

Analysts warn that declining confidence among foreign investors poses a risk to the US debt market. With a federal budget deficit of about $1.8 trillion and total government debt approaching $39 trillion, the United States remains heavily dependent on demand for Treasury bonds. Continued outflows of foreign capital might force the government to raise yields, thereby exerting pressure on economic growth.