Macroscope | US dollar weakness is no game changer for a globalised yuan

Beijing will seize on the crisis to promote the yuan, but without capital account liberalisation – essential for a truly global currency – its rise will remain limited

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An employee of a bank counts US dollar notes at a branch in Hanoi, Vietnam, in 2016. The prospect of a prolonged dollar bear market has major implications for the global economy and markets. Photo: Reuters

Published: 4:30pm, 19 Feb 2026

The US dollar’s decline is not over yet. Having fallen 10 per cent last year, the dollar index – a gauge of the US dollar’s performance against a basket of other major currencies – is down a further 0.6 per cent this year in the face of relatively high US interest rates, a resilient economy and the dominance of American technology companies.

The findings of a Bank of America survey on February 13 showed that fund managers’ exposure to the US dollar had dropped below last April’s low, when US President Donald Trump launched his tariff blitz. Sentiment towards the dollar has not been this bearish since the survey began in 2012.

The buzzword in financial markets right now is “hedge America”. Rather than selling US assets outright, most overseas investors are paying for protection against movements between the US dollar and other currencies while maintaining their exposure to moves in the price of bonds and equities.

The surge in hedging activity is keeping the dollar under strain, fuelling a dramatic recovery in emerging market assets. Foreign portfolio flows to developing economies last month soared to US$98.8 billion, the strongest January on record.

“Unlike prior episodes where flows were driven by a single asset class or region, January’s surge reflects a coordinated inflow across debt and equity, across China and [emerging markets] ex China and across all major [emerging market] regions,” Institute of International Finance senior economist Jonathan Fortun wrote in a report.

Some analysts expect a revival in the stock markets of developing economies akin to the 2003-07 rally that coincided with a 40 per cent drop in the dollar between July 2001 and April 2008. The results of Bank of America’s latest global fund manager survey on February 17 revealed that a net 49 per cent of respondents had an overweight position in emerging market stocks. By contrast, a net 22 per cent had an underweight stance in US equities.

.css-1m2rp1p{color:#34b8b5;}Macroscope | US dollar weakness is no game changer for a globalised yuan

Macroscope | US dollar weakness is no game changer for a globalised yuan