HSBC Asset Management reports that April’s improvement in risk appetite matched a sharp fall in the US Dollar. It says year-to-date performance is broadly flat and still fits a longer-term weaker-dollar trend.
It expects geopolitical and macro uncertainty to keep volatility risks in play. It adds that March market moves suggest any dollar uplift during volatility may be muted.
It says the past couple of years show the dollar staying fairly static during volatility episodes. It links this to a shift in how the dollar behaves in stressed markets.
It lists possible drivers as gradual de-dollarisation, concerns over US public finances, and concerns over institutional integrity. It also cites a view that the Federal Reserve may be constrained in responding to inflation shocks, compared with 2022.
HSBC says a “broadening out” market narrative depends in part on sustained dollar weakness. It states that recent price action keeps this scenario plausible in 2026.
The dollar’s sharp drop this April confirms the longer-term weak trend we have been tracking. This suggests we should position for continued softness, as the dollar’s reaction to market stress has fundamentally changed. Any bounce in the dollar during periods of uncertainty is likely to be short-lived and limited.
We saw this during the market jitters last month, where the Dollar Index barely climbed above 105 before retreating, a stark contrast to the sharp rallies seen during the banking stress back in 2023. This muted response suggests the old playbook of buying the dollar as a safe haven is becoming less reliable. This shift points towards a new market regime where dollar upside is capped.
This trend is supported by hard data on central bank reserves. The latest IMF report for Q4 2025 showed the dollar’s share of global reserves fell to 55%, a steady decline from the 58% level seen at the start of 2025. This indicates a gradual but persistent move away from dollar-denominated assets by major global players.
Concerns over US fiscal policy are also weighing on the currency, with the Congressional Budget Office’s Q1 2026 report projecting the debt-to-GDP ratio to exceed 115% by year-end. This, combined with a Federal Reserve that appears less aggressive on inflation than it was in 2022, is eroding confidence. We believe the Fed is hesitant to trigger a recession, even with core inflation remaining stubbornly above 3%.
For traders, this means selling out-of-the-money call options on the US dollar against currencies like the Euro or Swiss Franc could be an attractive strategy. This approach profits from the dollar staying flat or declining, capitalizing on the view that a significant rally is unlikely. These positions offer a way to earn premium while betting against a strong dollar surge.
We should also consider using options to build long positions in emerging market currencies that benefit from a weaker dollar. Currencies like the Mexican Peso and Brazilian Real have shown strength, and buying call spreads on these pairs against the dollar offers a defined-risk way to participate in their potential appreciation. This strategy aligns with the broader narrative of sustained dollar weakness through 2026.
