The tariff dispute between the United States and Europe over the "Greenland issue" continues to escalate, sparking market speculation on whether Europe might leverage its $12.6 trillion in U.S. financial assets as a "weaponized capital" tool to impact the Dollar Index. However, an analysis by the Financial Times suggests that such a scenario is unlikely to undermine the core support of the Dollar Index, whose resilience is underpinned by profound market and structural logic. As a core benchmark for the world's primary reserve currency, the stability of the Dollar Index is closely tied to global capital flows and the dynamics of various countries' holdings of U.S. assets.
Europe's current holdings of U.S. financial assets are substantial: direct holdings amount to approximately $8 trillion, and when combined with funds from the Middle East, Asia, and the U.S. itself that are custodied by European financial institutions, the total reaches a staggering $12.6 trillion. Within this, U.S. Treasury holdings by European NATO members, including Canada, total $3.3 trillion, which is double the combined holdings of Japan (approximately $1.1 trillion) and China ($730-770 billion). The movement of these assets was theoretically considered a potential variable that could influence the Dollar Index. From the perspective of the U.S. economic structure, its international investment position stood at a deeply negative -$26.14 trillion as of the end of June last year, indicating that the stability of the Dollar Index is highly dependent on sustained inflows of foreign capital. George Saravelos, Chief Foreign Exchange Strategist at Deutsche Bank, has previously pointed out that the massive U.S. external deficit is essentially financed by global capital. A deterioration in transatlantic relations could, in theory, lead to pressure on the Dollar Index if Europe were to withdraw funds. In fact, Danish pension funds began reducing their dollar-denominated assets and repatriating funds last year. These isolated actions led to market conjecture about whether Europe might initiate a wave of "selling U.S. assets," thereby impacting the Dollar Index. However, on a practical level, Europe's concept of "weaponizing capital" faces multiple obstacles from the outset, making it difficult to exert a substantive impact on the Dollar Index. The first issue is asset ownership: the vast majority of these $12.6 trillion in U.S. assets are held by thousands of private European financial institutions and millions of individual investors, rather than being directly controlled by national governments. Beyond "moral suasion," European authorities lack effective means for compulsory intervention and cannot form a concerted selling force. Private capital decisions, being dispersed, prioritize market returns. Although the dollar has weakened compared to a year ago, the positive growth outlook for the U.S. economy means private investors lack the incentive for large-scale divestment from dollar assets, naturally making it difficult to shake the Dollar Index. Secondly, limitations in market absorption capacity further block the path for Europe to influence the Dollar Index through asset sales. Large-scale selling by Europe would require buyers of sufficient scale to create an effective impact. Realistically, while the total market capitalization of MSCI Asian equities is approximately $13.5 trillion, similar in scale to the assets Europe might sell, the asset structures differ vastly. European investors are unlikely to readily sell core growth stocks like Nvidia to reallocate into Japanese bonds, and Asian investors lack both the sufficient willingness and capacity to absorb such a massive volume of U.S. assets. The U.S. itself, with its -$26 trillion net international investment position, lacks the foundation to absorb such selling pressure. Furthermore, a significant depreciation of the Dollar Index is not in the core interest of the United States, and achieving a societal consensus for such an outcome would be challenging. More critically, the deep financial integration between Europe and the United States means that any impact on the Dollar Index from "selling U.S. assets" would inevitably trigger blowback, ultimately proving counterproductive. For export-oriented economies, selling U.S. Treasuries would lead to a sharp appreciation of the euro, harming their own exports, given the high degree of financial fusion between Europe and the U.S. If European banks and investors were to massively withdraw funds from U.S. Treasuries, it could trigger a short-term dollar crash and a sharp plunge in the Dollar Index. However, the subsequent passive surge in the euro would severely damage Europe's export competitiveness, ultimately leading to an economic recession in Europe. The "mutually assured destruction" outcome of such a scenario ensures that Europe would be extremely reluctant to take such action, which in turn acts as an implicit support for the Dollar Index. The view of Kit Juckes, Chief Foreign Exchange Strategist at Société Générale, is apt: although the root of geopolitical turmoil lies in Washington, the spillover effects are stronger abroad, with overseas markets suffering far greater damage than the U.S. domestic market. Trump's tariff threats and the Greenland dispute might encourage a slow-moving trend of "selling U.S. assets," but these isolated actions are unlikely to achieve scale. In summary, Europe's $12.6 trillion in U.S. assets, while appearing to be a potential bargaining chip against the U.S., are difficult to convert into an effective tool for influencing the Dollar Index due to multiple constraints including asset ownership, market absorption capacity, and the risk of blowback. The Dollar Index, serving as a "ballast stone" for global financial markets, derives its resilience from the underlying fundamentals of the U.S. economy, global capital's demand for dollar-denominated assets, and the deeply intertwined financial structure between Europe and the U.S. While future geopolitical friction between the U.S. and Europe may cause short-term fluctuations in the Dollar Index, the notion of Europe significantly impacting it through "capital weaponization" is ultimately divorced from market realities. Recent tensions between the U.S. and Europe over Greenland have indeed put pressure on dollar-denominated assets. However, the high yield of U.S. Treasuries and the continued reliance of both the U.S. and Europe on dollar assets continue to support the dollar's trajectory. Traders should therefore avoid excessive bearishness on the dollar, as any slowdown in its decline could lead to a sharp and forceful rebound, subsequently affecting gold and foreign exchange markets. From a technical perspective, the Dollar Index is currently consolidating near the support level of 98.90, a level also mentioned in last night's analysis. The current extreme adjustment level is around 98.63. Subsequent attention should focus on whether the 98.90 level will be breached, with resistance levels at 99.15 and 99.23.
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