Dollar’s Safe Haven Status Under Threat: Global Investors Losing Confidence
For a long time, the US dollar has been seen as a “safe haven” in the global economy. But recent political and economic uncertainties are putting that status at risk. Experts say that doubts about US trade policy, rising national debt, and concerns over future leadership have made investors less confident in the dollar.
Reasons Behind the Fall of the Dollar
In 2025, credit rating agency Moody’s downgraded the United States’ credit rating. This decision increased investor fears. George Vessey, chief FX strategist at Convera, said the dollar still has room to fall. He mentioned that the downgrade has renewed a “sell America” trend in the markets.
Drop in the Dollar Index
Since January this year, the dollar index has fallen by 10.6%. This is the weakest position since July 2023. According to CFTC data, investors now hold a net short position worth $17.32 billion in the dollar. In January, the dollar index was 22% above its 20-year average (90.1). Even though it's still 10% higher now, experts believe the decline may continue and might even return to the levels seen during Donald Trump’s first term.
Long-Term Risks and Weaknesses in the US Economy
Steve Englander from Standard Chartered Bank says the dollar's weakness isn’t over yet. He explains that although some recent trade deals have calmed markets, they haven’t solved the long-term trust issues. Analysts also warn that Trump’s large tax cut plans could increase the national debt by $3 to $5 trillion in the next ten years.
Foreign Selling and the Dollar’s Role as a Safe Asset
Peter Vassallo of BNP Paribas Asset Management points out that if the dollar is no longer seen as safe, there’s no strong reason for investors to hold large amounts of it. Colin Graham from Robeco adds that although we haven’t yet seen massive sell-offs of US assets, it could happen in the future.
Large Holdings of US Assets by Asian Countries
Countries like China, South Korea, Singapore, and Taiwan have invested huge amounts in US Treasury bonds over the years. These nations hold about $2.5 trillion worth of US assets. Experts like Stephen Jen and Joanna Freire from Eurizon SLJ Capital warn that this could increase pressure on the dollar if they start selling off those holdings.
The Dollar’s Future Depends on US Economic Growth
The biggest support for the dollar right now is the relatively strong US economy. Jack McIntyre, a portfolio manager at Brandywine Global, says American consumers are still spending, which helps the dollar in the short term. However, he adds that they are now looking to sell dollars when it strengthens, instead of betting on a full recovery.
Conclusion
The US dollar’s position as the world’s reserve currency is facing serious challenges. A further fall in the dollar could impact not only the US economy but also global financial stability. The next few months will be very important to watch in this shifting financial landscape.