Bank of America reports that investor exposure to the U.S. dollar has slumped to an unprecedented underweight in its FX and rates sentiment survey. The bank said exposure levels "surpassed the lows noted in April 2025," reaching magnitudes "not previously recorded within our time sample (starting Jan-2012)."
The survey was run from 6-11 February and collected responses from 42 fund managers overseeing a total of $702 billion in assets. BofA strategists, led by Ralf Preusser, highlighted that this record bearish positioning has emerged even as some concerns around the Federal Reserve's independence have eased following the nomination of Warsh as the new Fed chief.
Despite the reduced worry over Fed independence, the bank's strategists said the shift did not produce stronger demand for the dollar or a sustained lift in optimism toward U.S. assets. They noted that asset allocation preferences among respondents reflected a prevailing caution: "Most now prefer to either increase their FX hedge ratios or reduce their exposures to U.S. assets."
Expectations about global reserves further underscore the survey's bearish tone toward the dollar. A substantial 87% of respondents anticipate additional reductions in the dollar's share of global reserves, and a rising subset of investors expects that decline to accelerate.
Short positions on the dollar are becoming more prominent among crowded trades. While being long risk remains the most commonly cited crowded position, the short USD trade has expanded relative to prior months. The strategists cautioned that most survey responses were submitted before the latest positive U.S. jobs report, which they said "might ease some of the bearishness - especially as US data resilience and Fed repricing is seen as the primary near term tailwinds for the dollar," indicating potential for near-term sentiment shifts.
The implications for regional markets are uneven. BofA's note pointed out uncertainty over whether reduced U.S. exposure will produce sustained outperformance for the euro area. Any benefits appear more likely to be concentrated in fixed income: a larger share of investors expect flows out of the U.S. and into the euro to find traction within fixed income markets, and core Europe versus U.S. duration exposure has reached levels not seen since 2013.
At the same time, sentiment toward core Europe has cooled even as duration exposure there has risen. In emerging markets, the picture is constructive overall but shows signs of moderation. EM FX exposure and sentiment have climbed to fresh post-COVID highs, yet respondents have simultaneously bolstered cash holdings and trimmed earlier strong overweight positions in EM local rates and hard currency debt.
In aggregate, the survey paints a picture of investors reducing dollar exposure and rebalancing toward hedged or non-U.S. allocations, while remaining attentive to U.S. data that could alter near-term positioning. The responses indicate active repositioning across FX, equities, and fixed income, with Europe and emerging markets both affected but in different ways: fixed income in Europe appears to be the main intended beneficiary, while EM allocations show a move away from extreme overweights back toward more cautious stances.