USD Under Pressure as Foreign US Treasury Holdings Drop $88.4B in December

The US dollar faces potential headwinds after data revealed foreign holdings of US Treasuries declined by $88.4 billion in December 2025, falling from a peak of $9.36 trillion in November to $9.27 trillion. This represents the largest monthly decline since late 2022, raising concerns about waning foreign appetite for US government debt. While the drop may appear modest relative to the total holdings, the magnitude of the single-month outflow signals a notable shift in global capital flows. Reduced foreign demand for Treasuries can weigh on the dollar by diminishing inflows of foreign capital into US-denominated assets. Traders should monitor whether this marks the beginning of a sustained trend or a one-off adjustment following the November peak. If foreign central banks and sovereign wealth funds continue reducing exposure, upward pressure on US yields could emerge alongside dollar weakness, particularly against safe-haven currencies like JPY and CHF. Near-term, the DXY index may test key support levels as markets digest the implications for US fiscal sustainability and global reserve diversification trends.