Confidence is contagious. So is lack of confidence.” ~ Vince Lombardi, US American Football Coach

De-dollarisation is often framed as a dramatic rupture: the collapse of the US dollar, the sudden rise of a rival currency, the end of a system that has underpinned global capital markets for decades. That framing is misleading. What is underway is not a revolution, but a gradual erosion of monopoly power.

The US dollar remains the world’s dominant reserve, trading, and funding currency. It is deeply embedded in contracts, balance sheets, and financial plumbing. But dominance is not the same as immunity. The post-pandemic world has introduced new strains on the dollar-centric order, and more importantly, on how the price of money itself is determined.

Geopolitics is one catalyst. The weaponisation of finance – sanctions, reserve freezes, and payment-system controls has transformed the dollar from a neutral medium into a strategic risk. For many nations, de-dollarisation is not rebellion; it is risk management. Reducing reliance on a politicised system is a rational response to a more fragmented and uncertain world.

The second catalyst is credibility. Persistent fiscal deficits, rising debt-servicing costs, questions around central-bank independence, and an expanding supply of US Treasuries have weakened the assumption that the dollar is backed by unquestioned discipline. This is where the renewed debate around the Federal Reserve matters. The issue is not whether policymakers are hawks or doves, but what the Fed is expected to be in a world of fiscal dominance.

For decades, markets treated the price of money as a technocratic output – set by committees consisting of economists, their models, and forward guidance. That era has ended. Money now has a price only insofar as it is believed. And belief is no longer free.

The Fed may still set the policy rate, but it no longer fully controls the long end of the curve. Equally, demand for Treasuries is no longer automatic and is increasingly price sensitive. When issuance rises faster than credibility, term premia do the adjustment.

Whilst the US Dollar might remain central, global capital is becoming more selective. Dollar assets still attract flows, but increasingly on a risk-adjusted basis rather than blind faith. That subtle shift explains why dollar strength and Treasury weakness can coexist — once an anomaly, now a feature.

Gold completes the picture. Its strength is not a fear trade, nor a simple inflation hedge. It is a referendum on credibility. Gold does not compete with government bonds on yield; it competes on trust. When the price of money becomes politicised, assets that make no promises gain value precisely because they cannot break them.

All this does not imply imminent crisis. But marginal shifts matter, and they compound. A more redundant financial system is emerging, with local-currency trade, reserve diversification, and parallel infrastructure.

The dollar is unlikely to fall from its throne overnight, but the exorbitant privilege the US Treasury once had has run its course. And in finance, that change is enough.

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MARKET REVIEW

Deflationary Boom Assets (Equities, Corporate Bonds, EMD)
January delivered a strong start for risk assets, reinforcing the view that markets continue to price a disinflationary growth backdrop rather than imminent recession. Global equities advanced 2.81% (USD), with performance notably broadening beyond US mega-cap leadership. Value outperformed growth decisively, with World Equity Value up 6.22% (USD) versus 1.10% (USD) for Growth, reflecting renewed interest in cyclicals, financials and non-US markets. Emerging Market equities led major regions, rising 7.70% (USD), supported by a weaker US dollar and stabilising global manufacturing momentum.

Corporate credit also benefited from the benign macro mix. US investment grade corporate bonds rose 0.18% (USD), while EM hard currency debt gained 0.36% (USD), indicating stable spreads and continued demand for carry. Equity valuations, however, remain elevated in parts of the US market, particularly within long-duration growth segments, reinforcing the importance of regional and factor diversification.

‍Deflationary Bust Assets (Government Bonds)
Government bonds lagged risk assets, highlighting persistent scepticism around duration despite easing inflation pressures. US Treasuries fell -0.09% (USD) in January, while UK Gilts declined -0.16% (GBP). The muted performance reflects ongoing concerns around heavy issuance, elevated term premia, and fiscal credibility. Markets appear willing to price policy easing at the front end but remain reluctant to aggressively bid long-dated sovereign debt, reinforcing the idea that bonds may offer less protection than in previous cycles.

Inflationary Boom Assets (Managed Futures, CTAs, Commodities excl. Precious Metals)
Inflation-sensitive cyclicals performed strongly. Energy markets surged, with Brent crude up 16.17% (USD) and the Bloomberg Energy Spot Index rising 20.42% (USD), driven by supply discipline and geopolitical risk premia. Industrial metals also advanced, with copper up 4.93% (USD), reflecting infrastructure demand and improving global activity. Managed futures captured this momentum, with the SG CTA Index gaining 3.11% (USD) and the SG Trend Index up 3.49% (USD).

Inflationary Bust Assets (Precious Metals & Inflation-Linked Bonds)
Precious metals were the standout performers. Gold surged 13.31% (USD), extending its one-year gain to nearly 75% (USD), while the broader precious metals complex rose 10.51% (USD). The move reflects declining real yields, a weaker dollar, and persistent demand for credibility hedges amid fiscal and geopolitical uncertainty. Inflation-linked bonds delivered modest gains, with US TIPS up 0.31% (USD), as inflation expectations remained contained but asymmetric risks persisted.

Overall, January reinforced a regime defined by policy support, dollar softness, and selective inflation hedging —rewarding diversified, regime-aware portfolios over narrow positioning.

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To see graphs, download the PDF using the button at the top of this page.

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