The dollar is not truly "weak"
Zoom out and the dollar still looks tall. On a trade-weighted basis adjusted for relative consumer prices across 26 partners, the Fed's measure shows last year's slide barely nicked an approximately 45% rally that began in 2011. That backdrop helps explain why investors entertained the idea of a Mar-a-Lago style accord to lean against dollar strength as Washington aimed to level the playing field for US manufacturers. Net-net, the dollar is not especially weak by long-run standards and could fall a lot more if conditions call for it.
Hedging is quietly shifting
Currency hedging by portfolio managers matters for FX flows, and it is moving, albeit gradually. The sharp dollar selloff last April and the resilience of US assets put buy-side hedging under the microscope. A BIS study pointed to a notable role for Asian investors, a reading Fed Chair Powell appeared to push back on.
Even so, with EUR versus USD in view, many entered the early part of last year with too little hedging as they assumed tariffs would keep the dollar firm, after elevated hedging costs had depressed ratios. That view missed the mark.
A rare window into actual hedge ratios comes from Denmark. The Danish central bank reports local pension funds and asset managers were at a 72% US dollar hedge ratio at the end of last year, with January 2026 figures due in early March. ING's base case is that dollar hedging becomes cheaper under a scenario of a 50bp Fed cut while the ECB holds steady, implying hedge ratios drift toward roughly 74% by year end.
That would mean more dollar selling coming through. A jump to an over‑hedged 80 to 82% is not the base case and would likely require a much larger loss of confidence in the dollar.
Safe haven mojo and who is buying
The dollar's safe haven punch has faded versus 2024, but it is not gone. ING gauges haven behavior by the gap between the Bloomberg dollar index's three month correlation with US equities and its correlation with 10 year Treasury yields. The more negative the reading, the more the dollar behaves defensively because it tends to strengthen when stocks fall and long yields rise.
Two things stand out. First, some safe haven value has been shed, not all of it. The three month correlation with the S&P 500 is -0.25, less negative than usual but still statistically significant.
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Second, these correlations move in cycles, so it is too early to call a structural shift.
On flows, the foreign bid for US assets is very much alive. Private investors account for above 80% of foreigners' US‑security portfolios and remain highly active. Net buying climbed from an average of $1.0 trillion per year in 2022-24 (or $88bn per month) to $1.5tr in 2025 (equivalent to $128bn per month), with flows focused on equities, Treasuries and corporate debt securities.
The share of the total US securities market held by foreigners has kept rebounding from its 2020 lows, hitting roughly 20.2% as of September 2025, the highest in roughly a decade. By contrast, official investors such as central banks, governments and sovereign funds have kept their exposure broadly flat since 2020. While that is a cautious posture, it is an improvement from the pre-2020 offloading period, and their visibility within the broader foreign investor pool has diminished.
Geography matters. China, along with Hong Kong, owns approximately $1.8tr in US securities, accounting for about 5% of total foreign holdings. China's yearly net disposals rose to $145bn in 2025 from $36bn in 2023, though the market effect has so far been modest.
Europe dominates, with $17.1tr - equal to 47% of foreign holdings - and it has consistently been a net buyer, shifting annual net buying from about $0.6tr in both 2022 and 2023; 2024 saw $0.8tr, and 2025 $0.9tr. Another wrinkle is transparency. Some country level data for December 2025 were not available at the time of publication.
De-dollarisation talk vs data
The broad markers of dollar use have not cracked. Looking across worldwide assets and liabilities as well as market turnover and transactional use, conditions have not generally worsened since 2024; in fact, in multiple metrics 2025 showed hints of re‑dollarisation. According to the latest IMF COFER data - which now cover 100% of global FX reserves in Q3 2025 - the dollar's share stands at 56.9%, a touch above the FX‑adjusted reading at end‑2024, with the usual caution that headline shares move with exchange rates.
The USD share in over the counter FX was 86.8% by mid 2025, also an FX adjusted recovery from 2024. Taken together, this does not support the view that last year's dollar softness reflected a fundamental loss of confidence.
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