Published On 7/6/2026
Global asset managers and investors are moving to reduce their dependence on the US dollar to finance their investments in emerging markets, with the US currency returning to its rise, driven by expectations of continued tight monetary policy in the United States, according to what was published by Bloomberg.
Bloomberg quoted investment managers at AllianceBernstein and Invesco as saying that they are now relying more on currencies such as the euro, the Australian dollar, the Canadian dollar, and the Japanese yen to finance high-yield deals, instead of the US dollar, in a move aimed at reducing the risks of US currency fluctuations.
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Morgan Stanley also recommended investors build positions in emerging market currencies against a basket that includes the dollar, the euro, and the yen, while Citigroup advised betting on the rise of the Brazilian real against the euro and the Australian dollar.
This shift came after the dollar regained its momentum in recent months, supported by the new Federal Reserve Chairman Kevin Warsh taking office, and his adoption of a speech that strengthened expectations that US interest rates would remain high for a longer period.
Yield deals
Carry trade deals are one of the most prominent investment strategies in emerging markets, as investors borrow in low-interest currencies to invest in currencies that offer higher returns.
A basket of dollar-funded emerging market currencies, which includes the Brazilian real, the Colombian peso and the Turkish lira, has achieved a total return of 26% since US President Donald Trump announced the new tariffs in April 2025.
But the continued strength of the dollar may reduce the attractiveness of these deals, as any additional hike in US interest rates will narrow the yield gap between the United States and emerging markets, reducing potential gains for investors.
A survey conducted by HSBC, which included 101 institutions managing assets worth $432 billion, showed that the strength of the dollar has become the biggest risk facing emerging markets, ahead of geopolitical risks, at a time when investors’ preferences for debt instruments denominated in hard currencies have increased.
However, investment managers believe that diversifying financing currencies does not necessarily reflect expectations of a sustainable rise in the dollar, as much as it represents a means of managing risks and reducing exposure to fluctuations in the US currency, in light of continued uncertainty about the future path of Federal Reserve policy.
