Ex-Morgan Stanley Currency Guru Warns Asia May Dump $2.5 Trillion In US Dollars Amid Trade War Shockwaves

The U.S. dollar could face a historic unwind as Asian economies re-evaluate their holdings amid rising trade tensions, according to a former Morgan Stanley currency strategist.

In a new note on Tuesday, Eurizon SLJ Capital CEO and co-CIO Stephen Jen and associate Joana Freire warned that Asian exporters and institutional investors could dump up to $2.5 trillion worth of dollar reserves, posing “sharp downside risks” to the greenback.

The note of caution comes as President Donald Trump’s aggressive trade policies in the form of heavy reciprocal tariffs, retaliations, and scrapped exemptions for low-value Chinese goods are rattling markets and longtime U.S. business partners.

According to Bloomberg News, the U.S. Dollar Index — which gauges the greenback’s strength against a basket of currencies — has already fallen 8% from February highs, and Asian currencies are surging in response.

Taiwan’s dollar jumped as much as 5% on Wednesday, the biggest gain in nearly four decades, prompting the country’s central bank to warn against “irresponsible speculation” and assert that the United States did not require the currency to strengthen.

Jen formulated the famous “dollar smile” theory over two decades ago, explaining how the dollar rallies when the U.S. economy significantly underperforms or outperforms its peers.

However, with America’s economic dominance waning and geopolitical risks rising, the dollar’s safe-haven status is no longer guaranteed, according to Jen. 

Two years ago, he warned that de-dollarization was entering a new phase based on the fact that dollar reserves in 2022 fell at 10 times the average pace of the past decade. That decline came as global sanctions were slapped on Russia following its invasion of Ukraine.

The move away from the dollar also comes amid increasing criticism from Trump’s own camp. Billionaire hedge fund manager Ken Griffin recently cautioned that the U.S. dollar’s global brand — and the appeal of Treasury markets — are being undermined by the administration’s unpredictable trade stance.

Even the "Oracle of Omaha" and outgoing Berkshire Hathaway CEO Warren Buffett recently said, "We wouldn't want to be owning anything that we thought was in a currency that was really going to hell."

The Invesco DB U.S. Dollar Index Bullish Fund (UUP) ended the last session down 0.62% at $27.31, taking its year-to-date losses to 7.4%.

Major stock ETFs such as the SPDR S&P 500 ETF (SPY) exchange-traded fund, the Invesco QQQ Trust (QQQ) ETF, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) have lost between 3.6% and 5.6%.

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