In early 2025, a subtle but unmistakable shift has taken hold in global currency markets: hedge funds are quietly—yet aggressively—positioning against the U.S. dollar. For a currency long considered the bedrock of global finance, this shift is more than just a speculative play; it reflects a growing narrative that America’s relative dominance may be peaking just as alternative monetary structures gain traction.
The trade-weighted U.S. dollar index (DXY), which surged to two-decade highs during the 2022–2023 inflationary cycle, has begun to weaken in the face of nuanced but powerful headwinds. Among them: the strengthening of commodity-linked currencies, political gridlock in Washington, stagnating real yields, and, perhaps most critically, momentum behind the BRICS currency initiative. Hedge funds are watching closely—and they’re not waiting around.
Recent CFTC data shows a growing net short position on the dollar across speculative accounts, particularly versus currencies like the Brazilian real, South African rand, Australian dollar, and even the euro. Macro hedge funds such as Bridgewater, Brevan Howard, and Element Capital have reportedly increased their bearish dollar bets since February. This isn’t just positioning for cyclical weakness—it’s a signal that the dollar’s supremacy is under review.
What’s fueling this new wave of dollar skepticism?
One factor is undoubtedly the progress made by the BRICS nations—Brazil, Russia, India, China, and South Africa—in building an alternative reserve currency infrastructure. While the bloc’s effort to launch a unified digital settlement system has been slow and complex, 2025 marks a year of real traction. A recent joint announcement from the BRICS+ summit in Johannesburg revealed that at least eight member and associate countries are now piloting commodity-cleared trade transactions settled outside of the SWIFT system.
Key to this system is the use of central bank digital currencies (CBDCs), especially China’s e-CNY and India’s digital rupee, which have seen scaled cross-border testing in energy and agricultural deals. Russia has been pushing for oil transactions priced in a synthetic BRICS unit—backed partly by gold and partly by a basket of commodities. The model isn’t yet fully fungible with the global financial system, but it’s gaining credibility. That credibility is enough for hedge funds to start assigning risk premiums to the U.S. dollar’s reserve status.
Moreover, U.S. fiscal policy is doing little to inspire confidence. In a year when the federal deficit is expected to top $1.8 trillion again, and the national debt-to-GDP ratio is projected to breach 130%, the dollar is no longer benefiting from “twin deficit” complacency. Political dysfunction following the contentious 2024 election has only added fuel. With the U.S. debt ceiling raised but no long-term fiscal consolidation in place, foreign buyers—especially Asian sovereigns—have begun to reduce Treasury exposure. This has made room for currency volatility.
Wall Street is taking notice. Goldman Sachs, in its latest FX outlook, flagged the dollar as “fundamentally overvalued” based on real effective exchange rate models. The firm has adjusted its 2025 year-end forecast for EUR/USD to 1.18, up from 1.07 just six months ago. JPMorgan, while more measured, now lists short-dollar positions among its top G10 FX trades for the second half of the year. The rationale? Global growth is rebalancing away from the U.S., and rate differentials no longer favor the dollar as cleanly as before.
Indeed, the relative interest rate picture is shifting. The Federal Reserve, while still cautious, is nearing the end of its hiking cycle. Fed funds futures now price in a 25–50 basis point rate cut by Q4 2025. Meanwhile, the European Central Bank, facing inflation persistence in energy and services, is signaling fewer cuts than previously anticipated. This has narrowed the yield spread between U.S. and European bonds—a key driver of dollar strength in past cycles.
But it’s in the commodity space where the dollar faces its most tangible threat.
The rise in commodity-linked currencies is no coincidence. Countries with large resource exports—and relatively lower debt burdens—are suddenly in vogue. The Australian dollar, Canadian dollar, Norwegian krone, and Brazilian real have all appreciated against the greenback since January. Hedge funds see in them a double play: an inflation hedge via commodity exposure, and a currency appreciation story tied to the de-dollarization thesis.
Brazil, in particular, is emerging as a hedge fund favorite. With inflation under control, a stable policy outlook under Finance Minister Fernando Haddad, and growing trade ties with China settled in yuan or local currency, the real has outperformed most EM peers. Large funds such as Point72 and Man Group are reportedly rotating into Brazilian local bonds and equities—implied FX exposure included.
The same is true, albeit to a lesser extent, in Australia, where strong demand from India and China for LNG, lithium, and iron ore has boosted trade surpluses. The Reserve Bank of Australia’s measured stance on inflation and robust labor market support the AUD as a relatively safe high-beta FX play. Hedge funds like to pair short-dollar positions with long-AUD exposure—particularly as volatility remains subdued.
Another tailwind for these trades is the gradual de-risking of Chinese growth expectations. While the yuan itself remains a tightly managed currency, the recent stabilization in China’s property sector and the PBOC’s restrained stimulus approach have given investors room to re-enter Asia FX. Long positions in the Singapore dollar and Malaysian ringgit—both beneficiaries of regional capital flows—are now seen as stealthy ways to express dollar weakness.
There’s also a technical component. After a multi-year dollar bull run, positioning is extended and mean reversion is inevitable. Many macro funds are simply exploiting overbought technicals and a crowded long-dollar trade that now faces unfavorable macro optics. The dollar’s resilience to previous shocks (like Ukraine, or early Fed hikes) may have created complacency. In 2025, that complacency is fading.
Still, betting against the dollar isn’t without risk. U.S. economic data remains surprisingly resilient in certain sectors—especially services and tech. Corporate earnings have held up better than expected, and any hawkish pivot from the Fed due to resurgent inflation could reverse dollar weakness rapidly. Additionally, global political uncertainty—from elections in Europe to simmering tensions in Taiwan—can still trigger dollar safe-haven flows at short notice.
Moreover, the BRICS currency initiative, while symbolically potent, is far from dethroning the dollar in actual volume terms. The greenback still accounts for over 50% of global trade invoicing and nearly 60% of global FX reserves. The euro and yen remain too politically fragmented or economically constrained to challenge dollar primacy. The yuan, while rising in bilateral trade, lacks full capital account convertibility.
In other words, the dollar’s long-term decline may be inevitable—but not necessarily fast. What hedge funds are doing now is exploiting the narrowing window in which short-dollar trades can profit without fully confronting structural barriers.
To be clear, this is not 2008 or 2020. The dollar isn’t collapsing. But its ceiling may be in. The combination of shifting rate differentials, commodity asymmetry, and the rise of alternative settlement networks is enough to make professional macro investors lean the other way. Hedge funds aren’t shorting the dollar out of ideology—they’re shorting it because, for the first time in years, the risk-reward favors the downside.
For everyday investors, the implications are significant. A weaker dollar means stronger earnings translations for U.S. multinationals, higher prices for imported goods, and potentially better returns from EM and international ETFs. It also makes currency-hedged strategies more relevant—particularly for those exposed to dollar-denominated debt or long-duration Treasuries.
Those with exposure to global equities may consider rotating into unhedged versions of European and emerging-market funds. Fixed-income investors might look at international sovereign debt with local currency exposure. And for traders, FX ETFs or structured notes tied to currency pairs like EUR/USD, USD/BRL, or USD/AUD may offer asymmetric payoffs.
Ultimately, the dollar’s fall from its post-pandemic peak is more than just a market story—it’s a reflection of a world becoming more multipolar, less reliant on one center of gravity. The hedge funds know this. And in 2025, they’re finally putting their money where that future might lie.
