The US dollar, once considered a safe-haven, has experienced its biggest daily drop since November 2022, sparking concerns about its global standing. Investors are shifting their attention away from the greenback, citing protectionist policies and rising US debt as reasons for the currency’s decline.
President Donald Trump’s tariffs on imports have ignited recession worries, leading to a sharp fall in stock markets. Analysts point to the erosion of the dollar’s appeal as investors seek alternative safe-havens. A crisis of confidence in the dollar could undermine its position as the world’s reserve currency.
The consequences for investors and policymakers are significant. Higher interest rates for longer and a rapid strengthening of currencies against the dollar would make exports more expensive and harder to revive growth. European central banks, in particular, face challenges as their currencies strengthen against the dollar.
Experts warn that the reversal in the US dollar’s fortunes is remarkable, with several investment banks raising the probabilities of a US recession. Money flows out of the US, reducing demand for dollars, and threatening the country’s status as an investment destination.
The situation has drawn comparisons to the mid-1980s ahead of the Plaza Accord, when the US pressured major partners to support its efforts to weaken the dollar. The idea of a “Mar-a-Lago Accord” to push through a weakened dollar gain traction among some, but experts caution that this is unlikely and would come with significant economic costs.
The lack of an alternative to the dollar poses a challenge, as investors seek more stable currencies. The US’s actions in the financial arena are increasingly seen as erratic, raising concerns about the country’s role on the global stage.
Source: https://www.reuters.com/markets/wealth/next-up-markets-crisis-confidence-dollar-2025-04-04