A series of recent economic policy decisions from Washington over the past two weeks have prompted debate among global bond and currency investors about whether to revive the "Sell America" trading strategy from last year. The uncertainty begins with Federal Reserve Chair Kevin Warsh's preference for reduced public communication, which has raised doubts about the central bank's commitment to fighting inflation, particularly given the unusually high number of officials supporting an immediate rate hike.
Secondly, Treasury Secretary Scott Bessent has authorized the United States to assist Japan in supporting the yen, marking the first coordinated intervention of its kind in nearly 30 years. Although the intervention was conducted through the euro to avoid disrupting the U.S. Treasury market, it could still pressure the dollar. With fiscal concerns, trade wars, and Middle East conflicts all potentially fueling inflation, some market participants are reassessing their willingness to hold U.S. Treasuries and the dollar as American policy becomes unpredictable again.
The yield on 30-year U.S. Treasuries has risen above 5%, reaching its highest level since 2007. Meanwhile, despite the usual support higher U.S. yields provide for the dollar, the greenback has weakened against almost all G-10 currencies over the past month. "Bessent and Warsh are a double whammy for global markets, and investors can't ignore it," said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management. He is selling U.S. Treasuries and the dollar, partly due to policy uncertainty. "They have to start pricing policy risk into the dollar and the Treasury yield curve, and in fact, they are doing so. This is what's called the Trump administration premium," he added.
The "Sell America" strategy gained traction in April last year when Trump's tariff actions triggered a simultaneous sell-off in the dollar, stocks, and Treasuries. While that sell-off quickly faded, it shook the long-held assumption that the U.S. could rely on the dollar's reserve currency status and deep capital markets to fund its widening fiscal deficit. This time, the market situation is more complex. U.S. stocks remain strong, with tech stock gains pushing the S&P 500 index to record highs.
Capital flows also indicate continued confidence in the U.S. Government data shows that as of May, foreign investors held $9.4 trillion in U.S. Treasuries, a 4% increase year-over-year. However, in bond and currency markets, some global investors warn that if the Fed does not present a clearer anti-inflation strategy, its control over the bond market could weaken, while any direct U.S. support for the yen could weigh on the dollar. As the largest foreign holder of U.S. Treasuries, if Japan is forced to sell part of its over $1 trillion holdings to fund intervention, it could also impact the Treasury market.
"These mixed messages are not helping capital flow into the U.S.," said Carol Lye, a portfolio manager at Brandywine Global Investment Management, which is bearish on the dollar in the medium term. "Bessent has now joined this camp, suggesting the yen might be stronger, which further solidifies our expectation for a weaker dollar," she said. The Bloomberg Dollar Spot Index has fallen about 2% since its peak in June.
Bessent defended the U.S. support for the yen, arguing that a weaker yen could lead to broad depreciation of Asian currencies. On Tuesday, he stated that Washington would "do everything it can" to support Tokyo, benefiting the U.S. economy and stabilizing global markets. When asked about reports of the intervention last Friday using euros to buy yen, Bessent said U.S. officials maintained close communication with European counterparts, explaining the move was "just a reallocation of foreign exchange reserves."
This intervention has already sparked concerns about the dollar's outlook. "Investors hate uncertainty," said Steve Brice, global chief investment officer at Standard Chartered Wealth Management. He expects the dollar to fall about 3% to 4% over the next 12 months, noting that government actions and other factors are eroding the structural advantages of the U.S. market.
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