Tokyo – The most recent speech for the US dollars reads like a book. As Donald Trump’s White House decouples the US from a worldwide business structure it dominates, the money is taking the brunt of the consequences.
This has caused the stockpile stock’s obituary to receive a lot of international investors. The four most perilous finance terms, this day one that is unique, may apply as the Trump 2.0 president struggles against economic weight.
The US president has made no secret of his hatred for an independent central banks, simple clarity or nasty norms like never defaulting on federal debt. The issue is less whether the economy’s time as the best safe sanctuary are over. It’s what information or events investors may be keeping an eye out for that could bring down the money.
They include Trump’s active with the Federal Reserve, the death of Treasury Secretary Scott Bessent, whether the trade conflict intensifies and how US-China conflicts shake out.
The currency’s approximately 10 % decline year-to-date has been fairly orderly, despite how terrifying it has been. In subsequent trading sessions, it has stabilized as Trump appeared to be easing up his tax arms race. The harm to the money is good done, though.
The head of foreign exchange at Goldman Sachs, Kamakshya Trivedi, claims that the US dollar’s failure is still present. It will continue and it will grow deeper. I think the dollar failure has more to work”.
According to Jonas Goltermann, an economist at Capital Economics, Trump’s price move has led to “what appears to be a general decline in trust in the US as a safe haven in money and relationship markets.”
Paul Singer, the leader of Elliott Investment Management, was quoted by Bloomberg as saying that the money may reduce its reserve currency reputation as a result of rising trade tensions in a recent speech at a personal event in Abu Dhabi.
Still others argue the economy’s declines aren’t as alarming as some think. The dollar’s “longstanding overvaluation is beginning to depreciate,” according to Samuel Zief, head of global FX strategy at JP Morgan Private Bank. This could cause a 10 % –20 % decline in comparison to major peers like the euro and the Japanese yen over the medium term. We don’t interpret this as a penny money decline, but rather as a reset.
Zief adds that” we don’t believe investors want to revamp their resource allocations, and the United States remains a useful base positioning. However, recent market activity teaches us that over-reliance on any single market can be dangerous. In a changing environment, intentional diversification across regions and currencies is crucial.
Trivedi is paying particular attention to the ways in which the BRICS — Brazil, Russia, India, China, South Africa— and other Global South nations are diversifying away from the dollar. Trivedi notes that in the near future, “it’s going to be the euro or the yen in the lead.” That’s your typical ultra-safe haven.
On the yen, Trivedi adds,” I think that we could be getting back to the low 130s in quick time if the labor market data in the US start to crack” . , That would be a startling move considering dollar-yen is at 142 now.
What all this means for the so-called “yen-carry , trade” is one risk factor. Japan became the most important creditor after twenty-six years of zero rates.
Over time, investors got into the habit of borrowing cheaply in , yen  , to fund bets on higher-yielding assets everywhere. From South African commodities to Indian real estate, derivatives on New York exchanges, and cryptocurrency, this strategy has kept everything afloat.
The recent yen surge could cause markets all over the world to pull the floor out of the sky. When the , yen  , zigs sharply, markets have long tended to zag. The BOJ’s decision to increase rates to their highest level since 2008 shook the world’s markets on July 31st, 2024. The BOJ increased rates a second time to 0.5 % in January, which was a second increase.
Arif Husain, head of fixed income at T Rowe Price, speaks for many when he calls the , yen-carry , trade , the” San Andreas fault of finance”. However, where the Trump White House takes US policy next is the real wildcard for foreign exchange markets.
What happens to the Jerome Powell-style target Trump placed on the Fed Chair? Unhappy that Powell warned US tariffs might cause stagnation, Trump posted on social media that the Fed leader’s “termination , cannot come fast enough”.
Trump’s threats to fire Powell shook the world’s markets. None of the US’s leaders had ever publicly demanded subservience, despite the fact that they frequently jawboned Fed policymakers at times. A simultaneous plunge in stocks and bond prices had Trump toning down his rhetoric.
Yet Krishna Guha, an economist for Evercore ISI, describes the episode as” self-defeating.” Guha claims that Trump “risks putting upward pressure on inflation expectations, making it harder for the Fed to cut rates,” by publicly undermining Powell.
Even so, few buy Trump’s insistence last week that he has” no intention of firing” Powell. After all, Trump said in the next breath that he wants the Powell Fed to be “little more active” in easing policy.
According to Linh Tran, analyst at , broker XS.com, the dollar is currently being governed by” three core drivers”: a belief the Fed will soon ease, uncertainty over US-China trade tensions, and geopolitical risks, “especially as peace efforts between Russia and Ukraine remain stalled.”
The spoiler could be Trump ratcheting up tensions againg with Powell. Or Bessent, who has been cast in Peter Navarro‘s “bad cop” as Washington mixes it up with Beijing. Co-author of the book” Death By… China,” trade advisor Navarro has been calling for a bigger trade war and a more ferme stance toward the Fed.
Bessent, who’s considered less MAGA-ish than all other Trump cabinet picks, has been a relative voice of reason and calm on tariffs. It was Bessent who, according to the Wall Street Journal earlier this month, pulled Trump back from the brink, for the time being.
However, many people worry that the Navarro camp will reaffirm itself. News reports on how Trump “blinked” or” caved” on tariffs probably aren’t going down well in Trump World. Trump is also susceptible to being caught in an ostensible lie about whether the US is currently negotiating with China on trade. Trump asserts that yes, while Beijing asserts that no.
Bessent has been caught in the middle in ways that could make the former hedge fund manager’s ability to stay in MAGA World difficult. Bessent was the one who had to discredit Trump’s claims that Xi Jinping and his top negotiators called him frequently.
China claims that no calls have been made. Bessent was also sent out to attempt to explain what Trump really meant when he claimed,” I’ve made 200 deals” with American trading partners.
The Treasury Secretary is also the authority on preventing another bear market collapse. Bessent assisted Trump earlier this month in avoiding a catastrophe as the so-called “bond vigilantes” rebelled against tariffs, which appeared to be a surefire way to stagflation. The debt market chaos raised questions about whether Asian central banks might dump their US Treasuries.
According to Meghan Swiber, US rates director at Bank of America,” Japan and China, two of the biggest holders of]treasuries], have been reducing their demand in recent years.” ” Over the long term, tariffs and the possibility of a US trade deficit may cause foreign selling pressures.” However, foreign investors are unlikely the only seller driving recent price action”.
Trump’s emphasis on tax cuts, which comes at a time when the US national debt is approaching US$ 37 trillion, poses a significant challenge for Bessent to master. The way that Bessent’s team won’t necessarily have the benefit of the doubt with traders suggests how the$ 140 trillion global bond market literally screamed at Trump’s chaos in Washington.
The same goes for Washington’s fiscal trajectory. European credit rating company Scope is ringing the alarm despite the eerily quiet US ratings agencies. The head of sovereign ratings at Scope, Alvise Lennkh-Yunus, warns that Trump’s tariffs could cause a critical mass of global investors to turn to “viable alternatives” to the dollar as the main currency.
” If doubts about the exceptional status of the dollar were to increase, this would be very credit negative for the US”, Lennkh-Yunus says.
Washington is currently rated AA by Berlin-based Scope, which is significantly lower than Moody’s Investors Service’s current AA rating for S&, P Global, and Fitch Ratings.
If China and the European Union strengthen their trade ties, Lennkh-Yunus predicts that the dollar’s status will suddenly become more uncertain. The same could happen if Xi accelerates steps to reform and open China’s economy. Another significant risk is if nations with significant trade surpluses and US financial exposure become accustomed to Trump’s antics for the time being.
Even so, it’s hard to see a ready replacement. The recent record-breaking rally in gold shows that neither the euro, the yen, nor the Chinese yuan are prepared to plunder up trillions of dollars looking for a new home.
According to Steven Kamin, a senior fellow at the American Enterprise Institute, a Washington-based think tank,” Our bottom line is that there is no viable alternative to the dollar’s global dominance for the foreseeable future, but that Trump’s actions may accelerate a , secular decline in dollar dominance , and in the process exacerbate financial market volatility.”
In his previous work with Mark Sobel, US chair of the Official Monetary and Financial Institutions Forum ( OMFIF), Kamin highlighted three key considerations with respect to upholding future dollar dominance: preserving the underpinnings of the dollar’s global role, maintaining trust in the US as a reliable partner, and avoiding overuse or abuse of financial sanctions.
Trump is “flipping many properties that underpin dollar dominance,” Kamin claims. Trump plans to lower taxes despite the fact that America’s fiscal trajectory is already unsustainable.
Trouble is, he notes, “already excessive debt and deficits are well poised to go higher. Team Trump has made reference to taxes or levies on capital inflows for those who might avoid the dollar.
Despite Trump’s claims that they disagree, China has not shown any urgency to join him at the table. As Guo Jiakun, Chinese Ministry of Foreign Affairs spokesman, told reporters:” I want to reiterate that China and the United States are not engaged in consultations or negotiations on the tariff issue”.
Only Trump and perhaps Navarro can say whether a “grand bargain” trade agreement with Beijing is still a possibility. Trump is negotiating trade agreements with Japan and South Korea in a fake-it-until-you-make-it fashion in the interim. Tokyo and Seoul are also saying no deals are imminent, despite contrary suggestions from Trump World.
However, as Trump hammers away at all the reasons why the dollar continues to be at the center of the global financial community, its safe haven status is now seriously in jeopardy. Trump is incentivising global investors to find them sooner rather than later, despite the lack of ready alternatives.
Follow William Pesek on X at @WilliamPesek