RBC BlueBay bets on the "American exceptionalism" coming to an end, starting to short the US dollar.

The global top asset management institution RBC BlueBay Asset Management expressed that Trump's trade war may destroy people's trust and reputation in the US dollar for decades. Therefore, the institution has opened a short position on the US dollar, betting that the "American exceptionalism" will come to an end. Due to concerns that Trump's trade tariffs will impact the economy, consumer income, and markets, and that investors will withdraw funds from the US stock market, the US dollar has been declining, indicating that investors are skeptical of the US's "exceptionalism" or its role as the cornerstone of the global financial system. Since April, the US dollar has fallen by 4% against the index of other six major currencies, making it the worst monthly performance since 2022. Meanwhile, US long-term bond yields are still close to a 17-month high. Typically, higher bond yields are favorable for the US dollar. However, this time, with more investors questioning the US dollar's safe haven status and its core role in the global financial system, the traditional positive correlation between them is at its weakest level in three years. Analysts from Danske Bank A/S, including Jens Naervig Pedersen, wrote in a report, "The confusion between the US dollar, yields, and traditional risk indicators is shocking and increasingly reminiscent of past pressure events." Pedersen said that last week marked the third time in over 50 years that the US dollar fell by more than 2.5%, while the 10-year US Treasury yield rose by at least 25 basis points. The other two times were during the Plaza Accord period in July 1985, which aimed to devalue the US dollar, and in May 2009. He said that after these two events, the US dollar remained weak. Options markets indicate that traders are preparing for this scenario. Options positions show that traders expect the US dollar to further decline. Bloomberg's US dollar spot index saw its largest drop since November 2022 last week, and the trend continued this week. Data from the Depository Trust & Clearing Corp. shows that about two-thirds of options trading in the past week was betting on the US dollar weakening against the euro, yen, and Swiss franc. RBC BlueBay has also turned bearish on the US dollar, after being bullish on it earlier this year and then closing positions in the first quarter. Mark Dowding, Chief Investment Officer of RBC BlueBay's fixed-income team, said in an interview, "At the beginning of last week, we were still selling the US dollar. The US policy making has lost credibility, and Trump's tariff policy feels like it hasn't been carefully thought out." Trump's repeated tariff threats have caused significant fluctuations in US stock, bond, and currency prices, sparking debates on whether the US dollar and US treasuries can maintain their safe haven status. Dowding said, "We believe that it may ultimately bring about a longer-term turning point for the value of the US dollar." Dowding stated that European and Japanese investors are now more focused on domestic assets rather than investing in the US. Currently, the fund is bullish on the yen and bets that the yen will rise to 135 yen per US dollar, a nearly 6% increase from the current level, as the yen is undervalued and foreign capital is flowing back to Japan. Dowding also believes that the Federal Reserve is unlikely to cut interest rates in the near future, as tariffs may disrupt supply chains, create shortages, and drive up inflation. Dowding added, "We will continue to see fluctuations in bond prices and are waiting for a good entry point. If the US 10-year Treasury yield falls below 4.2%, I want to sell; if it exceeds 4.8%, I want to buy." In other trades, he has started buying inflation-linked bonds in the US and Europe. He said, "We believe that the US inflation rate will reach 4% this year."