Global Fund Managers Slash Dollar Exposure Amid U.S.-China Trade Thaw
In May, global fund managers marked their most significant retreat from the U.S. dollar since 2006, according to Bank of America’s latest Fund Manager Survey. The decline in confidence was largely attributed to uncertainty surrounding President Donald Trump’s trade policies, which have weakened the appeal of U.S. assets. The survey highlights growing caution among institutional investors, many of whom are recalibrating their strategies in response to shifting geopolitical dynamics.
The cooling of tensions between the U.S. and China appears to have played a moderating role in investor sentiment. Following talks in Geneva, both countries agreed to a 90-day trade truce, temporarily easing tariffs and reducing the immediate risk of a global economic downturn. Although this development helped temper pessimism, it hasn’t fully reversed the defensive stance many managers have taken with regard to American markets.
Despite the recent diplomatic progress, BofA noted that investor sentiment in early May remained “glum,” particularly concerning U.S. assets. Though slightly less bearish than in April, the survey suggests that the market still sees room for a cautious “pain trade” rebound—where investors are forced to chase performance amid improving conditions they initially bet against.
One sign of cautious optimism is the reduction in cash holdings among fund managers, from 4.8% to 4.5%, often interpreted as a sign that money is being redeployed into risk assets. However, the U.S. dollar remains notably out of favor, holding the largest underweight allocation since May 2006. This positioning reflects a broader skepticism about the dollar’s near-term outlook amid unpredictable policy shifts.
Looking ahead, concerns over a severe economic downturn appear to be easing. Only 25% of survey participants now anticipate a hard landing, down sharply from nearly half in April. A growing majority—61%, believe a “soft landing” is the more likely scenario, signaling that despite uncertainty, the market is slowly regaining a sense of direction.
Source: Reuters