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The status of the US dollar as refuge for global capital can be threatened by disorderly policies and increasing trade barriers, have warned fund managers.
On Friday, the coin fell to a three-year low against the euro, extending a slide that began last week after President Donald Trump announced the “reciprocal” steep tariffs for US trading partners.
The movements caused alarm among investors, who warned of a “tectonic shift” for the global economy if the dollar could no longer be supported to provide a shelter during periods of market instability.
“Now there is (now) a very good occasion for completing the US dollar franchise,” said Bob Michele, JPMORGA Management’s main investment official, with 3.6tn under management.
For decades, the relative stability of the US economy has allowed the dollar to function as a reserve currency in the world – held by central banks across the globe.
This has allowed the US to borrow low cost and finance “Twin Deficit” to the country’s current account and its government budget.
But a simultaneous sale in capital, bonds and dollar in recent days, driven by the aggressive agenda of the president’s trade, point to a loss of trust in American assets among international investors, money managers said.
“The chaotic policy of Trump’s tariffs undermines the position of the United States as a secure shelter,” said Bert Fossbach, co -founder and leading investment official of Flossbach von Stork, the largest independent manager of German assets.
“Certainly there is a possibility that increased policy uncertainty at the US can lead to shifts in the use of the dollar in the global economy,” said Brad Setser, an associate with the Council for Foreign Relations.
Edward Fishman, author of stippleA book on the US Economic War said that in addition to Trump’s tariffs, the president’s rule of law threats and the Fed’s independence could undermine the seduction of the dollar.
He predicted that over time this can result in a shift in a “multi -polar” system in which the coins, including the euro, play a larger role.
The collapse of the dollar is particularly unusual because global financial stress typically strengthens the currency, as investors rush to the assets labeled in the dollar, such bonds of American treasury perceived to be shelter.
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Economists also said that the currency of any country that imposed import tasks was expected to strengthen.
Mike Riddell, manager of the fixed income portfolio at Fidelity International, said that the latest sharp movement in the yield of longer government bonds, accompanied by a poorer US dollar, looks like “good flight of old capital”.
However, the US President’s economic advisers in the past have highlighted the costs that have come with a strong dollar.
Stephen Miran, chairman of Trump’s Economic Advisers Council, argued before the president’s inauguration that Dollar status as a worldwide currency had artificially inflated the exchange rate, undermining global US production competition.
Economists have discussed Miran’s argument and raised concerns that its reasoning could make the Trump administration take further steps to depress the value of the dollar.
Michael Kruutzberger, Global CIO of Fixed Income at Allianz Global Investors, said: “The more the conflict escalates, people think, what can be the next steps?”
