Fears that the U.S. dollar is entering a period of rapid debasement have mounted amid recent swings in currency markets. The dollar has been notably volatile in recent weeks and briefly hit multi-year lows, prompting commentary about "Sell America" trades and broader worries over currency debasement.
Yet market evidence does not currently back the notion of a coordinated retreat from U.S. assets, according to analysis from Bank of America. The bank retains a negative view on the dollar over the longer term but anticipates any decline to be slow-moving - a process that it expects to play out through 2026 and 2027.
Several sets of market data underpin this more measured reading. Positioning and flow indicators do not show large-scale exits from U.S. holdings. Measures of dollar risk premia have risen only modestly, and options market positioning suggests the degree to which traders are short the dollar has not meaningfully increased compared with three months ago.
Cross-asset flows reinforce this picture. Inflows into both equities and fixed income do not point to a broad pullback of foreign capital from U.S. markets. Bank of America highlights that there has been only one trading day this year in which both the dollar and U.S. equities experienced heavy selling simultaneously - a pattern inconsistent with the type of widespread selloff that would signal a structural debasement.
Instead of mass liquidation, the more likely market response to currency moves is increased hedging by international investors. European asset managers, for example, may boost currency hedges on their U.S. exposures. Such hedging activity could apply incremental downward pressure on the dollar over time without producing a rapid collapse in its value.
Macro indicators do not, at present, add weight to a debasement narrative. Inflation expectations are described as remaining anchored, and while fiscal concerns are part of the discussion, they have not translated into market stress levels that would suggest a broad loss of confidence in the dollar.
Part of the anticipated gradual depreciation of the dollar may stem from relative strength in other currencies rather than a sudden breakdown in U.S. fundamentals. Bank of America points to a set of potential supports for the euro, including prospects for better euro zone growth later this year, fiscal stimulus measures in Germany, and possible spillovers from stimulus in China. Over a longer horizon, structural developments such as shifts in defense spending and trade arrangements could also bolster European assets.
Overall, while the dollar faces medium- to longer-term downside risks, current market positioning, flows and macro signals do not support a near-term, rapid debasement scenario. Any weakening is expected to be gradual and could be amplified by increased hedging rather than wholesale selling of U.S. assets.