• A net 50% of fund managers now say the U.S. dollar is overvalued, up from 41% last month, according to Bank of America's May Global Fund Manager Survey.
  • The dollar sits about 1.2 standard deviations above its long-term average, signaling reduced enthusiasm for further gains.
  • The shift reflects broader concerns over U.S. growth, tariffs, and fiscal stability, with investors increasingly positioned for a weaker dollar.

Fund managers are turning increasingly skeptical on the U.S. dollar, with a net 50% describing it as overvalued in Bank of America's May survey, the highest share on record. That's up from 41% in April and marks a notable shift in sentiment toward the world's reserve currency.

The survey highlights that the dollar is trading roughly 1.2 standard deviations above its long-term average, a level that historically signals stretched valuations. While not extreme, the reading suggests investors see limited upside from here and may be bracing for a pullback.

"We're seeing a clear rotation out of U.S. assets," one fund manager told BofA, speaking on condition of anonymity. The survey's findings align with a broader pattern of softer confidence in U.S. exceptionalism, as trade policy uncertainty and fiscal concerns weigh on the outlook.

Economic factors are also at play. A weaker dollar could boost U.S. exporters and emerging markets, but it would also raise import costs for American consumers and firms. The survey shows investors linking dollar overvaluation to slowing global growth, tariff risks, and expectations of Fed rate cuts.

Political context adds to the bearish tilt. Market commentary tied to the survey points to ongoing Trump-era tariff actions and worries about U.S. fiscal stability as key drivers of the sentiment shift. Internationally, sustained dollar weakness would affect dollar-funded trade and debt servicing in emerging economies.

"The dollar is the most crowded trade to be short right now," said a strategist at BofA, reflecting the survey's findings. The shift is part of a broader move away from U.S. assets, with investors turning more underweight the dollar than they have been in years.

Looking ahead, the survey suggests increased risk of dollar consolidation or a pullback if growth data softens or policy uncertainty persists. Much depends on U.S. inflation, interest-rate expectations, and whether global investors continue trimming dollar exposure. For now, the market appears to be preparing for a weaker dollar regime rather than another leg higher.