The Institutional Bull Case for the US Dollar: Strategic Implications for Global Portfolios

The U.S. Dollar (USD) remains a focal point for institutional investors in 2025, as macroeconomic positioning and portfolio reallocation strategies continue to shape its trajectory. While recent tariff-driven bearish narratives have cast doubt on the dollar's dominance, a closer examination of institutional strategies and evolving global dynamics reveals a nuanced bull case. This analysis explores how macroeconomic factors, central bank actions, and portfolio reallocation are creating opportunities for the USD, even amid headwinds.

Macroeconomic Positioning: Trade Deals and Rate Cuts as Catalysts

A critical driver of the USD bull case lies in the U.S.-China trade deal, which has begun to ease inflationary pressures. By reducing tariffs on Chinese imports-such as cutting fentanyl-linked tariffs from 20% to 10%-the overall tariff rate on Chinese goods has dropped to 47% from 57%, according to an SCMP opinion piece. This shift not only stabilizes global supply chains but also creates conditions for the Federal Reserve to pursue rate cuts in 2025. Lower rates could enhance the dollar's appeal as a safe-haven asset, particularly if other central banks, such as the European Central Bank, maintain tighter monetary policies.

Institutional investors are already factoring in these developments. JPMorgan's Q3 2025 review highlights a return to fundamentals, with firms like Weyerhaeuser Company optimizing portfolios to capitalize on asset management trends. Weyerhaeuser's Q3 net income surged to $80 million in 2025 from $28 million in 2024, underscoring how strategic reallocation can drive value creation. Similarly, Getty Realty's 3.2% dividend increase and projected 6.3% revenue growth by 2028 reflect a focus on capital returns, even amid sector-specific risks like the EV transition, as noted in Horizon's Q3 2025 commentary. These examples illustrate how firms are navigating macroeconomic headwinds by prioritizing USD-denominated assets.

Portfolio Reallocation: Capital Flows and Central Bank Coordination

Portfolio reallocation strategies are further reinforcing the USD's bull case. Horizon Investments' Q3 2025 Strategies Commentary notes that firms are increasingly prioritizing long-term stability over short-term gains, with a focus on capital preservation in volatile markets. This trend aligns with broader institutional shifts toward USD assets, particularly as central banks in Asia and Europe recalibrate their policies.

For instance, the renewed currency swap agreement between the Korean and Chinese central banks-extending to 2030-highlights evolving regional dynamics. While this deal primarily supports bilateral trade, it indirectly underscores the importance of USD as a global reserve currency. Institutions are likely to reallocate capital toward USD assets to hedge against regional currency volatility, especially as central banks in non-U.S. markets face constrained policy space, as reported in a Korea Times report.

Countering Bearish Narratives: Tariffs and Fiscal Deficits

Critics, including SSGA, argue that tariffs and fiscal deficits will weaken the USD by 15% over two years, citing converging U.S. yields with G10 averages and high current account deficits, according to SSGA's analysis. However, the U.S.-China trade deal mitigates some of these risks by stabilizing trade flows and reducing inflationary pressures. Additionally, the Federal Reserve's ability to adjust rates in response to economic data provides flexibility that other central banks lack.

BlackRock's recent $81.7 million net outflow from its US Ethereum ETF on November 4, 2025, reflected in Farside data, reflects shifting institutional sentiment toward lower-risk assets. While this move signals caution in crypto markets, it also highlights a broader trend of capital reallocation into USD-denominated bonds and equities. This shift is further supported by the U.S. Treasury's efforts to maintain fiscal discipline, which could improve investor confidence in the dollar's long-term stability.

Strategic Implications for Global Portfolios

For global investors, the USD bull case presents both opportunities and challenges. The dollar's strength is likely to persist in 2025 if the Fed continues to cut rates while other central banks maintain tighter policies. However, portfolio managers must balance exposure to USD assets with hedging strategies to mitigate risks from geopolitical tensions and sector-specific shocks.

Institutional investors should prioritize USD assets that align with macroeconomic tailwinds, such as high-quality equities and Treasury bonds. At the same time, diversification into non-USD assets-particularly in regions with aggressive fiscal stimulus-can provide a buffer against dollar overexposure. The renewed focus on capital preservation and long-term stability, as seen in firms like Getty Realty, suggests that a hybrid approach combining USD and non-USD assets may offer the most resilient portfolio structure.

Conclusion

The U.S. Dollar's bull case in 2025 is underpinned by a combination of macroeconomic factors, including trade normalization, rate cuts, and institutional reallocation. While challenges like tariffs and fiscal deficits persist, the evolving global landscape offers a compelling rationale for maintaining a strategic bias toward USD assets. As central banks and investors navigate this complex environment, the dollar's role as a global reserve currency remains a cornerstone of institutional strategy.