The dominance of the US dollar is progressively weakening, according to financial experts' warnings
Warning Bells Ring for the Almighty Greenback
The undisputed reign of the US dollar might be facing a slow but steady demise, as the currency falters to reclaim its throne post-Trump's trade war, leaving investors apprehensive about the future of American assets.
The DXY index, charting the greenback's performance against a basket of currencies, has dipped 6.5% since the beginning of the year, marking its worst two-month performance since June 2002. Conversely, the S&P 500 has managed to bounce back from the hits sustained during 'Liberation Day,' registering a 0.3% growth in the past month. Likewise, US Treasury yields have retreated from their lofty perches, with 10-year yields plummeting from 4.5% to 4.3%, hovering near pre-tariff levels.
Deutsche Bank economist Peter Sidorov termed the dollar a "notable laggard," failing to sync with the upward trajectory of other measures of US financial health. Although the dollar has exhibited slight gains against the euro and yen over the past week, it has continued to slide against other Asian currencies. For instance, the Taiwanese dollar surged 6.5% over the weekend, while China's yuan hit its highest in almost six months at 7.2 per dollar, and the South Korean Won surged nearly 3% on Friday.
Nigel Green, chief executive of Devere Group, predicts, "We don't believe this is a short-term wobble. It's the opening phase of a steady but far-reaching shift." He further elaborates, "Dollar supremacy isn't vanishing overnight, but its era of unquestioned dominance is fading. This decline is not a crash—it's erosion."
Green attributes the market's reluctance to completely trust the US economy post-tariff phase, despite the recovery, to a growing discomfort with the idea of the dollar being politicized. He foresees a "more fragmented system" as a broader mosaic of major currencies takes center stage.
Central banks worldwide have been gradually distancing themselves from their reliance on the dollar, with the greenback accounting for just under 59% of global reserves, down from over 70% at the turn of the century. Michael Krautzberger, global CIO of fixed income at Allianz Global Investors, anticipates the dollar's value to continue slipping, owing to Trump's turbulent policies and the potential to destabilize the Federal Reserve's leadership and erode monetary policy credibility and investor confidence in US assets.
"We also think that the US dollar will face ongoing headwinds through 2025, so we prefer to have a short US dollar footprint in portfolios," concludes Krautzberger. The anxiety surrounding the dollar's uncertain future echoes a shift in global financial dynamics, as nations embrace a de-Americanized world.
Business and investing communities are growing apprehensive about the future of American assets, given the US dollar's faltering performance and the slow decline of its unquestioned dominance in the global economy. Central banks worldwide are distancing themselves from the greenback, preferring a more fragmented system with a broader mosaic of major currencies taking center stage, as noted by Nigel Green, chief executive of Devere Group.
