The dollar is declining, and investors must learn to adapt to this trend.

The past12months have been tough for the U.S. dollar, with the U.S. Dollar Index, which measures the U.S. dollar's value relative to a basket of major international currencies, falling over the past year8%, And the potential worries are still increasing. These hidden concerns include:Cracks in the U.S.-led multilateral system; growing concerns that the U.S. dollar will continue to be weaponized through sanctions and asset freezes; doubts about the independence of the Federal Reserve; uneasiness about the U.S. government's profligate spending;and a long overdue rebalancing as overseas growth and yields become relatively more attractive.

None of this means the dollar will suddenly fall out of favor and be completely abandoned in a panic sell-off. It will not immediately lose its reserve currency status and be suddenly replaced by the RMB or other currencies. But the dollar's popularity as a savings, trade and ultimate safe haven asset is declining. This makes a diversified investment strategy of allocating international stocks and bonds (especially emerging markets), and using a certain proportion of gold as a buffer a good choice in the next few years.

If individual investors and large institutions collectively reduce their U.S. dollar holdings, it will inevitably have far-reaching consequences. " text="">Excessive privilege’will fade,"Asset Management InstitutionPGIMVice Chairman, Global Chief Economist, Former Deputy National Security Advisor in the Biden AdministrationDaleep Singhmeans. He added that the cost of losing some of its luster could be higher borrowing costs, a reduced ability to absorb financial shocks and a reduced ability to inflict shocks through sanctions.

The strong position of the U.S. dollar has always far exceeded the size of the U.S. economy. Its share of the global foreign exchange reserves and international debt issuance market is approximately 60%to80%Which is equivalent to two to three times the share of the United States in the global economy. For years, critics have argued that the U.S. dollar’s ​​dominance would be eroded, but that never happened because no alternatives existed.

This situation began to change more than a decade ago: as China began to gradually reduce its dependence on the U.S. dollar, allocating part of its reserves to gold while promoting the use of its own currency on a wider scale. Butthe real turning point occurred after the Russia-Ukraine conflict and subsequent sanctions and asset freezes.The weaponization of the U.S. dollarprompted central banks to reduce their holdings of U.S. dollars and turn to gold. Trump's attempts to acquire Greenland and frequent threats of tariffs have also shaken the trust of European allies in the United States and forced them to find alternatives.

This is more like"Quiet exit", not a"Sell-off in the United States"'s craze. Rather than sell off U.S. Treasuries en masse, many central banks are choosing to let the bonds mature naturally and replace them with gold. Cameron, Research Director of EPFR leaf="">Brandt (Cameron Brandt) said that many U.S. bond investors are reducing U.S. duration risk——Shift to bonds with shorter maturities.

According toEPFRData,In the last two months of 2025, net inflows into emerging market equity funds totaled 708. text="">billion dollars, while U.S. stock funds attracted only 43 billionbillion dollars.

Overseas fund flows have also started strongly this year. According toMorningstar Directdata,1U.S. stock funds had a net outflow of US$340Month, while international stock funds had a net inflow310billion dollars, while emerging market equity funds absorbed $150billion dollars.

The most significant shift toward diversification has occurred among central banks. James, senior fellow at the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution leaf="">Milesi-Ferretti said that as ofGold is expected to account for a quarter of central bank reserves by the end of 2025, up from just 2017 lang="EN-US">10%; among them, China, Turkey and Russia have the largest changes.

Milesi-Ferretti pointed out that The proportion of the U.S. dollar in central bank reserves has increased from 2017Countries are also using the RMB more in trade financing and direct investment in China. However, China's strict capital controls and high household savings rate make it difficult for the renminbi to become a competitive reserve currency unless the government implements large-scale structural reforms.

Countries are also introducing measures to promote the internationalization of their currencies. Europe has expanded the use of its global liquidity tools, such as the repurchase facility line in times of market stress, to include non-ECBs. India is promoting the use of the rupee for trade settlement and cross-border financing, while 10 European banks have joined forces to launch a euro-backed stablecoin later this year.

But even just decentralized configuration will change the asset operation logic in some way. In the past, when the dollar was dominant, overseas investors could count on a stronger dollar when risk aversion increased, partially offsetting losses in U.S. stocks. That has begun to change, forcing overseas investors to rethink what constitutes a good hedge or safe-haven asset.

·Nordvig (Jens Nordvig) means: ——And this is significant: Because of the high cost of hedging, people will be more tempted to hedge more against the U.S. dollar, or reduce their exposure to U.S. stocks. "

) said in a debate at a foreign exchange conference that there is no risk of the U.S. dollar being replaced. When he attended the meeting again this year, he believed that the dollar would enter a multi-year bear market, citing the breakdown of alliances and growing concerns about the United States' dependence on China's critical supply chain.

China's upcoming “The 14th Five-Year Plan" plan, re-listing the internationalization of the RMB as a focus. Beijing has also reportedly asked state-owned banks to further reduce their allocations to U.S. Treasury bonds and instead buy more gold. Regulators are also encouraging greater use of the renminbi in lending and transactions by taking control of the payment system and creating alternatives to SWIFT. Since2018, the proportion of China's merchandise trade settled in RMB has more than doubled, reaching 28%; and almost all trade financing in China is now using RMB instead of US dollars.

"This is not something you see on a Bloomberg terminal,"Nordwig said. "And this will bring a variety of knock-on effects, because now new participants must hold RMB balances in Chinese banks, which may create demand for Chinese treasury bills, or prompt them to choose to hold gold in China."

Geopolitics is also helping to improve economic conditions overseas, providing impetus for the strengthening of national currencies relative to the US dollar. The continued conflict between Russia and Ukraine coupled with the uncertain prospects for US support has prompted Germany to plan to invest leaf="">1Trillions of euros (1.18trillions of dollars) are spent on military spending and infrastructure construction. Germany12Monthly factory orders grew at the fastest pace in two years, which could help revive the German economy——and fueled further gains in the industrial sector, including European defense stocks, which remain undervalued compared with their U.S. peers.

Japan is also at a crossroads. Prime Minister Takaichi Sanae proposed a plan to revive growth with a sharp increase in military spending and stronger industrial policies, but the yen suffered a sharp sell-off as the market worried about the fiscal situation. Japan's total government debt has reached 2.3 times its GDP, a figure that is almost twice that of the United States.

However, a landslide victory in this month's snap election gives the Japanese prime minister a strong mandate to pursue what she calls "Responsible and proactive fiscal policy" to reshape the economy. It is too early to tell whether it will work, but political stability coupled with reforms may prompt Japanese investors to return some of their assets allocated to the United States and push Japanese stocks higher.

In emerging markets, multiple dividends and multiple forces are also converging. As inflation slows, more than a dozen emerging market central banks, including Brazil, are preparing to cut interest rates; pro-business reforms and a commodity boom are also bringing opportunities to Latin America. Earnings in emerging markets are expected to rise by 29% this year, more than double the U.S. forecast. Faster growth coupled with falling inflationary pressures could force emerging market currencies to reprice relative to the dollar.

The dollar will still show partial strength. The dollar recovered in 2after Trump nominated former Fed governor Kevin Warsh, who was seen as a more traditional choice, as the next Fed chairman. The dollar would also get a boost if U.S. interest rates rise or geopolitical tensions, such as those surrounding Greenland, ease. And, Although the market has been talking about a weaker dollar, this round of decline just brings it back to the past30Near themidnear the end of the world.

Even the dollar shorts don’t think the dollar’s status as the world’s reserve currency is about to end. The U.S. dollar remains the most widely used currency - accounting for more than 90%—and the U.S. market is the most liquid and deepest. There are currently nocompetitors with similar capabilities.

Overseas dependence on the U.S. dollar has weakened—but has not disappeared. The additional yield investors require to hold long-term Treasury bonds is now about 1.25 percentage points, higher than text="">2023The zero level at the end of the year. Historically, this level remains relatively low. Moreover, the United States has not yet needed to lower market prices to digest the supply of 10-year Treasury bonds.

Citi strategist Drew·Pettit is watching measures such as FX implied volatility to gauge whether worries about a weaker dollar will evolve into signs that the change is about more than just asset diversification. So far, implied volatility is in the bottom decile of the distribution of levels over the past five years.

Pettit said thatU.S. investors investing in U.S. stocks actuallydon't have to worry too much——The trend of the US dollar is the smallest among the factors that affect the valuation of S&P500. Even if a weaker dollar is good for U.S. exporters, the benefits may be overstated because global companies are likely to produce overseas and sell locally rather than exporting their products out of the United States.

But there are exceptions. Pettit screened out companies that had a high proportion of overseas sales relative to overseas assets, highlighted exports in their quarterly results, and disclosed significant foreign exchange-related gains in their quarterly reports. Companies that meet these requirements include semiconductor manufacturer Applied Materials leaf="">, Broadcom and LAM Research(LAM Research), and medical diagnostics company Agilent Technologies Technologies and text="">Bruker).

A weaker dollar has a greater impact overseas. Overseas stocks outperformed U.S. stocks last year, and over the past yearMSCIGlobal (excluding the United States) indexes have risen

The easiest way to ride this trend is to buy a broad baseETF. DataTrek ResearchCo-founder Nicholas·Colas has been recommending that clients adjust their allocation ratios back to be consistent with the global index: the index65%of its assets are in the United States, and 35%are in other regions. Like iShares MSCI ACWI ETFor Vanguard Total World ETFFunds like this can quickly achieve this goal at a lower cost.

These products are not highly configured for emerging markets. Low-cost options for locating emerging markets include: Pioneer FTSE Emerging Markets ETF (excluding South Korea, about half of the allocation is in China, (excluding China)ETF (approximately10%Configure Latin America). If you want to increase your exposure to Latin America, regional funds such as BlackRock Latin America40 ETF are more suitable.

The biggest beneficiary of the weakening dollar may be overseas bond markets. Vishal, manager of Eaton VanceFull Return Bond FundKanduja Leaf="">Vishal Khanduja) said that as of the end of last year, the fund's allocation to overseas assets was 6%, the highest level in five years. The appeal: Real yields are improving in other parts of the world as central banks start to diversify their allocations, while the way investors hedge is changing.

Kanduja no longer allocates investment-grade bonds of U.S. financial companies and instead chooses bonds of European financial companies, because the overall economic environment is mild, credit conditions are still solid, and the spread after exchange rate conversion is beneficial to U.S. investors. He also found high-yielding opportunities in Mexico and Brazil, arguing that investors were adequately compensated to hedge against potential political risks such as trade and the Brazilian election.

Asset Management InstitutionGMOTina, Head of Emerging Countries Debt Team·Vandersteel believes that local currency bonds in emerging markets are ushering in"A rare opportunity in a generation"Opportunities: asset prices are extremely low, the currency is expected to strengthen, and interest rate spreads (the yield advantage over U.S. bonds) are generous. lang="EN-US" text="">International Full BondETF.

As the dollar weakens, U.S. Treasuries may also lose their safe-haven properties (the ability to appreciate even as other assets fall),meaning the need to find new safe assets. Although gold price volatility has increased as prices have risen, gold has still become the consensus choice in the market. Ray, founder of Bridgewater Associates·Dalio suggested that investors can add 5%–15%Allocation of gold.

Continued reallocation could be a boon for gold. JPMorgan Chase's Zhang said that if investors slightly increase the allocation ratio from3%to3.5%, the price of gold is expected to rise to 6000USD; and in the next few years, if it rises to Yardeni ResearchEd·Yadni recently stated in a report that by2029gold prices will reach10000USD is possible.

Gold's rise is the most obvious sign that investors are reassessing their perception of the dollar. This may not be "Selling the United States", but after decades of dollar dominance, it's time to look more elsewhere.