By Vivien Lou Chen

Japan’s election and a report on China’s efforts to move away from U.S. assets has the ‘sell America’ theme back on traders’ minds

Worries about the trajectory of the U.S. dollar resurfaced in Monday’s trading session.

A widely followed gauge of the U.S. dollar fell toward one of its lowest levels in four years on Monday as investors weighed Japan’s parliamentary election results and China’s efforts to move away from U.S. assets.

The ICE U.S. Dollar Index DXY was briefly down as much as 0.8%, at 96.8, after having stabilized toward the end of last week. This brought the dollar back toward one of its lowest level since February 2022. For reference, the greenback index touched a four-year low around the 96 level in late January.

Contributing to the dollar’s weakness on Monday was this past weekend’s parliamentary election results in Japan, which gave Prime Minister Sanae Takaichi’s governing party a supermajority – eliminating one uncertainty that had been facing the market. Another catalyst for Monday’s moves was a report by Bloomberg, citing unnamed people familiar with the matter, that revealed Chinese regulators have advised banks to pull back on their holdings of Treasurys – raising the possibility of a broader, more sustained shift away from U.S. assets like the dollar.

“The China news is doing more of the damage to the dollar than Japan is,” said Amarjit Sahota, director at Klarity FX, a San Francisco-based advisory firm that helps clients manage foreign-exchange risks. The concerns being expressed by Chinese regulators over the concentration risks of holding Treasurys “alludes to one of the bigger themes floating around – the ‘sell America’ mentality – and keeps that sentiment anchored as one of the major themes weighing on traders’ minds this year.”

Just over a week ago, the dollar index fell to a four-year low on fears of a more prolonged devaluation in the U.S. currency. Those worries were sparked in part by President Donald Trump’s comment that the dollar was “doing great,” suggesting he was not particularly concerned about its weakness over the past year. The president has previously cited the benefits of a weaker dollar, saying it can push down the cost of American exports – making it easier for U.S. businesses to compete globally.

But toward the end of last week, the dollar was showing signs of stabilizing. That is until the Bloomberg report, which moved the foreign-exchange market on Monday, helped revive concerns about the U.S. currency and questions about whether it could lose its global reserve status.

Meanwhile, the yen (USDJPY) strengthened against the dollar on Monday because uncertainty about Japan’s election is now “out of the way,” Klarity FX’s Sahota said in a phone interview. But the longer-term trajectory of the Japanese currency is less clear, he added.

-Vivien Lou Chen

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02-09-26 1325ET

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