The US dollar's position as the global reserve currency and trade settlement currency was long considered unassailable. However, recent data reveals that its appeal is gradually waning. This change is reflected not only in exchange rate fluctuations but also more profoundly in trade contracts, investment choices, and declining global confidence in the US economic and political system. The US dollar has traditionally been viewed as a safe haven asset, but its poor performance during recent crises has failed to attract sufficient safe-haven flows.
Historically, the US dollar has often been seen as a global safe haven. In times of geopolitical conflict or economic crisis, investors tend to flock to dollar-denominated assets, such as US Treasuries or cash. However, data from 2025 shows that the US dollar's performance during crises has not lived up to this traditional role. For example, following heightened geopolitical tensions, the US dollar index (which measures the dollar against a basket of major currencies) has only managed a slight rebound of approximately 0.5%, far below its historically significant appreciation. Meanwhile, gold prices have risen significantly, while oil prices have seen modest increases, indicating that market risk sentiment is present, but the US dollar has not become the preferred safe-haven asset.
Background of the Weak US Dollar
Since 2025, the US dollar's performance has undergone unexpected changes. Driven by Trump's "Trump Deal" logic, the US dollar once surged strongly, but after he officially took office, the exchange rate began to gradually decline. Especially since the implementation of the "reciprocal tariff" policy on April 2nd, US stocks, bonds, and foreign exchange markets have all declined, raising serious questions among global investors about the dollar's safe-haven properties and dominance. This unusual weakening of the dollar not only overturns traditional economic logic and market expectations, but also reveals profound changes in the global monetary system.
The Dollar and Global Trade Dynamics
◇ Trump's Economic Dilemma
When Trump complains about the United States' persistent trade deficit, he may not realize that the root cause of this deficit is not tariffs or trade barriers imposed by other countries, but the massive influx of capital into the United States and the groups that profit from this capital. The Trump administration faces the challenge of the trade deficit, and reducing capital inflows conflicts with the interests of Wall Street.
◇ Market Doubts about the Dollar
It is worth examining this historical dialectic: a country that controls the role of the global reserve currency may ultimately find itself unable to fulfill that role. If deindustrialization becomes an inevitable consequence of managing a reserve currency, and manufacturing is crucial for war, then the nation may find itself unable to defend its hegemony on the battlefield.
In a paper last year, Stephen Milan, Trump's economic advisor, argued that this dialectic would intensify over time until the status quo became untenable. Markets panicked about the dollar's credibility, prompting investors to seek alternative currencies. When Trump declared that the United States would eliminate its trade deficit with the rest of the world, dollar asset markets sounded the alarm. Each of Trump's statements intensified the sell-off in the Treasury market, and even after he ultimately reversed his stance, the bond market has not significantly recovered.
The dollar's credibility was severely challenged, prompting many investors to search for alternative currencies. On April 10th, following Trump's announcement to suspend tariffs, we witnessed the most dramatic currency market volatility in a decade. The dollar depreciated significantly against the euro and Swiss franc, while US Treasury yields rose much faster than those on German government bonds. This undoubtedly triggered market panic, as investors had expected a flight to the safety of dollar assets in times of turmoil, but the opposite occurred.
Conclusion:
A Rational Response to Trends
The US dollar's trajectory is like a giant ship sailing at sea, its course determined by policy trends, economic currents, and capital flows. In the current environment, holding US dollar assets requires two key considerations: first, avoid excessive concentration in a single currency; second, monitor the precise timing of any Federal Reserve policy shifts. For the average investor, building a diversified currency portfolio may be more practical than betting on the rise or fall of a single currency.