Betting against “American exceptionalism” has not given good results for over a decade, but the big year this year may change that. Many in Wall Street – and in the White House – believe that the fall of the greenness was expected for a long time.
Entering 2025, the US currency had valued more than 50% since its minimums during the great financial crisis, according to JP Morgan Private Bank, and the strength of the dollar helped US actions to become the envy of the world.
A weaker dollar now seems to be giving foreign actions a chance to reach it. But with America still being the main center of the Artificial Intelligence Revolution, at least for now, US assets may be ready to counteract historical tendencies and resume leadership.
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Still, the chaotic launch of tariffs by President Donald Trump may have inaugurated a new era for the dollar. Earlier this month, it was 10% below the year against the basket of currencies of the famous dxy index. This is the biggest loss for the dollar in the first half of the year, according to the ReutersSince 1986, shortly after the US and several allies have reached an agreement, known as Plaza, to control the overvalued currency.
Can dollar fall more?
And although there was a slight recovery amid the conflict between Iran and the Israel-It alliance, investors have not yet compensated for the exit since “Liberation Day” in early April. This suggests that the so -called “Venda America” operation still has breath, Bill Sterling, GW & K’s global strategist, told Fortune last week.
“In the general context, there is plenty of room for the dollar to fall even more,” said Sterling, former international chief of Merrill Lynch.
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If tariffs continue to weigh from the US growth perspective, US assets become less attractive. And while it doesn’t seem like the dollar will be replaced as a world reserve currency anytime soon, it may no longer command the same level of confidence.
In recent decades, Sterling has observed, foreigners have funded the US explosive deficit by buying US assets, whether they are shares, treasury titles, dollars and the like. Although the republican’s “great and beautiful” spending bill does not seem ready to change the trajectory of national debt, it includes provisions that should increase taxes on foreign capital of several important business partners.
“At a time when we have a 7% deficit/GDP ratio and we need foreign capital to help finance this deficit,” Sterling said, “considering measures to discourage capital entry is almost a revenue for a weak dollar.”
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In his view, rapid changes in politics in Washington have caused a long -awaited correction for an overvalued dollar. He and many others point to the parity of purchasing power, a concept that assumes that long -term exchange rates should allow a certain amount of money to buy the same amount of goods and services in any country.
Popularized by Economist’s Big Mac index, there are many reasons why this concept often does not materialize in the real world. Data from the International Monetary Fund showed that the dollar was 105% overvalued at the base of purchasing power last year, surpassing previous peaks in 1985 and 2002, Sterling wrote in a recent research note.
However, such an imbalance cannot exist forever, he said, and the ball may be starting to roll. According to the monthly survey of Bank of America’s back managers, betting against the US dollar has become one of the world’s most popular operations – but more than 60% of respondents said the dollar is overvalued.
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“And once a trend is established,” Sterling said about currency markets, “she can sometimes feed on her own.”
Global trend
If the fall of the dollar persists, it will have great implications for the economies around the world – and for Americans’ stock portfolios.
Since the global financial crisis, US actions have widely overcome the rest of the world. Foreigners responded by injecting money in America and now have 18% of the US stock market, according to Apollo chief economist Torsten Sløk.
These trends, however, may reverse if the weakness of the dollar leads investors to allocate more money elsewhere. When Americans buy foreign shares and see the dollar fall, Sterling noted, their returns can receive a significant boost.
Meanwhile, Trump -fed commercial tensions seem to be forcing both developed countries (Germany) and emerging economies (such as China) to focus on stimulating internal demand, he said, something that stock markets tend to reward.
He pointed out how the Japanese markets reacted to the agreement Plaza, which made Iene shoot dramatically at the dollar.
“This was considered a hard blow to its export industries,” he said. “But the Japanese stock market was one of the strongest in the world in the second half of the 1980s because they reduced interest rates very aggressively.”
The comparison may be opportune, with several voices in Trump administration, including Vice President JD Vance and the main economic advisor, Stephen Miran, previously defending a weaker dollar to increase the competitiveness of US exports. Miran even talked about a possible “Mar-Lago agreement” to orchestrate another devaluation of the dollar.
This kind of agreement may be unrealistic, but foreign exchange markets seem to be doing the job alone. Meanwhile, many foreign stock markets are more than resisting the uncertainty of tariffs.
The Hang Seng Hong Kong index, for example, rose more than 20% this year, compared to the gain of almost 3% of S&P 500 in the year until Monday’s closure. S&P Latin America 40, in turn, silently rose 20%.
AI and “American exceptionalism”
Sterling recognizes, however, a great caveat for his argument about the weakness of the dollar. There is a lot of optimism – perhaps well grounded, he added – about AI business that many still believe to be in their early stages. It would be shocking if the American leadership in this sector would disappear anytime soon, regardless of what happens to US commercial and economic policy.
This means that investors will need many dollars, preventing the dollar from falling hastily.
“Perhaps American exceptionalism is still the main history in the global economy for the next five years,” he said, “even though tariffs and all related political measures that reduced US position have taken us from hyper exceptionalism to mere exceptionalism.”
But technological leadership has not always guaranteed higher return returns, especially when the dollar is relatively weak. From February 2002 to July 2011, the MSCI EAFE Index, which covers large and medium -sized companies in markets developed outside North America, almost doubled in value, Sterling noted. S&P was far behind, earning just over 40% during this period.
This article was originally published at Fortune.com.
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