This week’s sharp decline in the dollar may be more significant than initially thought due to its lack of response to global economic stress. Typically, a strong dollar would rise during times of inflation and rising interest rates, but also when there is geopolitical disruption.
However, the recent plunge suggests that investors are not seeking safety in the US dollar as they usually do. Instead, they’re looking at alternative havens like the euro and yen, which have surged to their highest levels this year. The DXY index, a measure of the dollar’s performance against major currencies, has fallen to its lowest point since early December.
Several factors are contributing to this shift. US President Donald Trump’s aggressive trade policies, including new tariffs on Mexico and Canada, have sparked anxiety among investors. Additionally, European nations like Germany are planning to rearm and invest in defense, which may reduce the dollar’s appeal as a safe-haven asset.
Industry experts warn that if the US loses its status as a safe-haven currency, it could have far-reaching implications for global markets. Deutsche Bank’s top currency strategist, George Saravelos, believes that two pillars of America’s role in the world are being challenged, and the potential loss of the dollar’s safe-haven status should be taken seriously.
As investors increasingly look to alternative assets, the US economy and politics may face significant challenges. If the dollar loses its appeal as a safe-haven currency, it could lead to higher interest rates and reduced investor confidence in the US market.
Source: https://www.livemint.com/market/stock-market-news/haven-no-more-dollar-smile-looks-lopsided-mike-dolan-11741158084723.html