It looks like you're new here. If you want to get involved, click one of these buttons!
The U.S. dollar is an early casualty of President Donald Trump’s us-against-the-world trade war. The dollar has lost almost 10 percent of its value since Inauguration Day, with more than half of decline coming this month after the president’s decision to lift taxes on imported goods to their highest level since 1909.
The weaker dollar — now near a three-year low against the euro — is bad news for Americans traveling abroad and could also aggravate inflation by making foreign goods more expensive. U.S. exporters, however, should gain.
“The administration’s approach to policy and its lack of transparency in terms of motivations have all led to a distinct sense of unease in financial markets,” said David Page, head of macro research for Axa Investment Managers in London, which manages $1 trillion in investments. “It doesn’t look like what we have been used to in terms of well-thought-out policy.”
Those concerns last week sent investors fleeing from the dollar and U.S. government securities, historically a haven during financial crises. This week, after markets quieted, Treasury Secretary Scott Bessent dismissed those concerns. In an interview Monday with Bloomberg Television, he said there was “no evidence” that foreign investors were abandoning U.S. assets, saying they had been active participants in recent auctions of government debt.
“The dollar is incredibly entrenched in the global financial system in ways that no other currency is. Importing, exporting, borrowing, hedging, using the dollar for collateral, all of these things that major actors in the international economic system use the dollar for, would be so difficult to modify,” said Paul Blustein, author of “King Dollar: The Past and Future of the World’s Dominant Currency.”
As the president’s enthusiasm for tariffs made the United States look riskier, investments in other markets became more attractive. In Europe, the German government last month abandoned a constitutional borrowing limit and made plans to spend heavily to spur the economy and fund a military buildup, raising growth prospects. China encouraged higher consumer spending to better balance its export-heavy economic model. And Japanese 10-year government debt offered its highest return in 15 years.
Recent gains by the Swiss franc, the euro, Japanese yen and gold, which is up more than 7 percent in the past five trading days, support the idea that investors are looking for new ways to ride out the turmoil unleashed by the president.
Yet for major institutional investors, giving up on the dollar is not feasible. The $28 trillion Treasury market is the world’s largest and most liquid, meaning that investors can quickly sell their holdings if they need to raise cash. In contrast, there are only $1.4 trillion in German government bonds outstanding. Alternative currencies likewise fall short. The Chinese yuan is assuming a greater role in global commerce. But the Chinese government does not allow capital to move freely across its borders, meaning investors could find their funds trapped.
The euro also is handicapped. Nations that use the euro share a central bank in Frankfurt, which governs the zone’s monetary policy. But they lack a common fiscal authority akin to the U.S. Treasury and a common bond market.
Even if the era of global dollar supremacy survives the trade war, the currency’s short-term outlook might be poor. Trump’s imposition of widespread tariffs has made a recession more likely, economists say, which could hurt stock prices and prompt the Federal Reserve to cut interest rates. That would make investing in dollar-based assets less appealing.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
Some perspective provided by J.P. Morgan / January 3, 2025 -
”The U.S. dollar has continued to defy gravity, rising 7% in 2024 despite two Fed rate cuts. While the DXY Index peaked in September 2022, the U.S. real broad effective exchange rate (REER), which measures the dollar’s value relative to a broad basket of currencies adjusted for inflation differentials, remains near all-time highs. Dollar strength is expected to stabilize or persist into 2025 for several reasons …
”Even with the factors supporting the dollar, its ascent is unlikely to continue indefinitely. Currently, the dollar is two standard deviations above its 50-year average, suggesting limited room for further appreciation. Historically, the dollar has alternated between periods of strength and weakness, making a downturn likely at some point, though the timing is uncertain. Additionally, the U.S.'s persistent trade balance deficit, at 4.2% of GDP as of September 2024, poses a long-term constraint, highlighting a structural challenge that could eventually pressure the ,. but think so.
“A strong dollar can hurt international company performance for U.S.-based investors. It can also negatively impact U.S. companies with significant international exposure and U.S. exports by making goods more expensive abroad. While a stronger dollar could bolster the 'U.S. exceptionalism' narrative in 2025, investors should carefully assess its potential impact on their portfolios.”
Thanks for posting @Old_Joe / I’m not FD - but am sometimes mistaken for him.
PS - You make a good point re foreign travel OJ. I recently heard someone from California remark that it was cheaper to book a week-long ski trip / vacation in Japan last year than in nearby Colorado. Not sure if that included air fare, but believe it did.
You gotta be kidding on that... no bloody way, mate!
The US has the exorbitant privilege of the dollar being the world's reserve currency.
No other currency in history has been so globally dominant.
Foreign exchange reserves are most often denominated in US dollars.
Three quarters of global trade and 85% of all currency swaps involve dollars.
Recent policy actions have incentivized governments, central banks,
and financial institutions to question their dependence on the dollar.
The podcast features an informative discussion with Paul Blustein who authored
"King Dollar: The Past and Future of the World’s Dominant Currency."
Podcast
As the source here cited explains, the reserve currency status has been conferred on the U.S. Dollar since the end of WW II by other nations largely because of the size of its economy, its ability to issue debt, its respected financial regulatory system, its geopolitical power and - yes - by the stability of the currency. If you told me several of those requisites were in decline, I’d not argue with you, but let’s acknowledge that a somewhat diminished value of the dollar (vs other currencies) by itself is not enough to cause a loss of the reserve status.
Thanks for the linked podcast @Observant1 / Listened to it partially. I’m a big fan of Reuters and a subscriber.
There is no other currency (e.g., Euro, Yen, Renminbi) that could take its place.
However, the dollar's dominance as a reserve currency could erode due to recent events.
Interestingly, this decline was not matched by increases for the euro, yen, or pound.
"Dollar dominance—the outsized role of the US dollar in the world economy—has been brought into focus recently as the robustness of the US economy, tighter monetary policy and heightened geopolitical risk have contributed to a higher greenback valuation. At the same time, economic fragmentation and the potential reorganization of global economic and financial activity into separate, nonoverlapping blocs could encourage some countries to use and hold other international and reserve currencies."
"Recent data from the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) point to an ongoing gradual decline in the dollar’s share of allocated foreign reserves of central banks and governments. Strikingly, the reduced role of the US dollar over the last two decades has not been matched by increases in the shares of the other 'big four' currencies—the euro, yen, and pound. Rather, it has been accompanied by a rise in the share of what we have called nontraditional reserve currencies, including the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won, Singaporean dollar, and the Nordic currencies. The most recent data extend this trend, which we had pointed out in an earlier IMF paper and blog."
https://www.imf.org/en/Blogs/Articles/2024/06/11/dollar-dominance-in-the-international-reserve-system-an-update
Good article from the Council on Foreign Relations.
Thanks!
Another outrage rant about nothing from someone with TDS.
The Dollar has been fluctuating.
In the last 10 years USD/EUR has been from 0.75 to now 0.88.
Wow, Europe is more expensive for American tourists.
I'm flooded.
You should start at least 3 new threads daily with hate or maybe post on the same one, after all, it's all similar.
On the other hand you were never outraged about the highest inflation which is the most harmful thing that I have seen in decades.
Get used to the fact that Trump will be in the news every day -:)
Or maybe you should be outrage by the fact that Biden wasn't in control in the last years, his aids hide him and ran our Gov instead.
Or rent a sump pump?
Posters would need more info about all that to have any chance of helping you outta that mess.
Economists has a related article, How a dollar crisis would unfold. Sorry it is behind a paywall. A short excerpt from the article, https://economist.com/leaders/2025/04/16/how-a-dollar-crisis-would-unfold
@Old_Joe, please continue with your invaluable daily posting. The world of economic is complex and they are intertwined with many factors. To be an informed investors, it is necessary to understand these factors in order to mitigate the forthcoming risk.
@hank and @Observanr1, thank you for your contribution.
We're already flirting with this stuff, given the political turmoil-nonsense-craziness. And people are suffering not just in terms of their money.
I love when people quote economists. These people have been wrong countless times, and most of them are liberal-leaning academics.
You don't need to go far and listen to Nobel Prize, Krugman in 2016 (link).
Quote: "“So we are very probably looking at a global recession, with no end in sight. "
Here is another article from 2016(link)
"Donald Trump is a "dangerous, destructive" choice"..."The letter, first reported by The Wall Street Journal, was signed by 370 economists, including eight Nobel Prize winners."
Reality: the economy was great until covid-19 hit. You can see the real wages at
https://fred.stlouisfed.org/series/LES1252881600Q
BTW, why didn’t these 370 economists criticize Biden for the highest inflation in decades?
Many of the issues mentioned by the economists in 2016 are still relevant in 2025.
FD1000 - thank you for bringing this important letter to the group's attention!
Several excerpts were selected below to facilitate the sharing of this vital information.
"He degrades trust in vital public institutions that collect and disseminate information about the economy,
such as the Bureau of Labor Statistics, by spreading disinformation about the integrity of their work."
"He uses immigration as a red herring to mislead voters about issues of economic
importance, such as the stagnation of wages for households with low levels of education.
Several forces are responsible for this, but immigration appears to play only a modest
role. Focusing the dialogue on this channel, rather than more substantive channels, such
as automation, diverts the public debate to unproductive policy options."
"He has misled voters in states like Ohio and Michigan by asserting that the renegotiation of NAFTA or the imposition of tariffs on China would substantially increase employment in manufacturing. In fact, manufacturing’s share of employment has been declining since the 1970s and is mostly related to automation, not trade."
"He claims to champion former manufacturing workers, but has no plan to assist their transition to well-compensated service sector positions. Instead, he has diverted the policy discussion to options that ignore both the reality of technological progress and the benefits of international trade."
"He has misled the electorate by asserting that the U.S. is one of the most heavily taxed
countries. While the U.S. has a high top statutory corporate tax rate, the average effective
rate is much lower, and taxes on income and consumption are relatively low. Overall, the
U.S. has one of the lowest ratios of tax revenue to GDP in the OECD."
"His statements reveal a deep ignorance of economics and an inability to listen to credible experts. He repeats fake and misleading economic statistics, and pushes fallacies about the VAT and trade competitiveness."
"He promotes magical thinking and conspiracy theories over sober assessments of feasible economic policy options."
The facts: during Trump's first admin: inflation was low, real wages went up.
Biden's admin: highest inflation in 40 years, real suffering among consumers.
The rest is just noise = "It's the economy, stupid"
All politicians lie and exaggerate. Nothing is ever perfect.
The left got extreme and was replaced. Many still can't come to the center.
Biden's admin claimed that the border has been closed for years, and they need more money to handle it. That's a lie you can't ignore.
Trump did it in weeks.
Biden's admin let millions of unvetted illegals come in; thousands were criminals. Trump is cleaning up.
Trump told you what he is going to do: lower taxes, close the border, kick out high-level criminals, and impose tariffs. Eliminating boys playing women's sports. Reducing government/state employees. He is doing it.
Most people understand why Trump is using tariffs and admit the unfair practices. They hate how Trump is doing it. I get it. We tried other tactics, and they didn't work. Give the guy several months, and let's talk. Yes, it is difficult; markets are volatile, and Dems scream murder. What matters is the end result. You start from 30-50-150% tariffs...and you get 10%(and some cases a lot more). That's a win. If you start from 10-15%, you get 2%.
In the past:
Trump asked NATO countries to pay more; they laughed until he told them the US would not support them...and they paid more. That was rude, tough, and unconventional among allies...but it worked.
Putin attacked Ukraine during Obama and Biden, but not Trump.
So, go ahead and scream 3 times daily; the Trump's agenda has been implemented...or...maybe come back to center and join forces with more common sense, as Clinton did.
My main point stands: this thread was a rant about NOTHING.
Lastly, what should you do with your portfolio?
The easy route for most is doing nothing. Invest based on your goals.
I'm a bond trader based on current conditions and did exactly that. No complaints.
BTW, using words like ignorance, pathetic, nazi, crazy tell me a lot about someone.
You are the one who is "screaming."
Your incessant whining is extremely disruptive to the forum!
"My main point stands: this thread was a rant about NOTHING."
This thread is for discussing how the U.S. dollar and Treasuries may be impacted by the trade war.
Please try to control yourself and stay on topic.
It's very disrespectful to the OP when his/her thread is hijacked
to express partisan rants which are entirely irrelevant to the topic.
Everything is political, and it all connects to money and portfolios and investing and interest rates. When a gummint itself turns lawless--- like our own, currently--- people flee. And so does their money. Which is the sh-hole country NOW, eh?
without the rule of law, no investor in the US can ever be sure again they can get their money back. If they try to fire Powell does anyone doubt the market will drop 15%?
What people like FD1000 ignore are the methods being employed.
We can disagree that tariffs will never create show manufacturing factories again in the US, although no reasonable economist believes this. But who believes slapping huge tariffs on our friends is positive? The Canadians hate this, and are going to be extremely reluctant to cooperate in actions against Chinese dumping etc.
They weren't the last time. Op-Ed, Fareed Zakaria, Washington Post, April 18, 2025
https://www.washingtonpost.com/opinions/2025/04/18/trump-tariffs-smoot-hawley-great-depression/
on the dollar, though strategists say it is too early to say how long the trend will last."
"The moves lower in the dollar could also be large because they are reversing the rush into U.S. assets
after the November election."
“'The market was cherry picking growth-friendly policies, and then there was a reality check,'
said Athanasios Vamvakidis, global head of G-10 foreign exchange strategy at Bank of America.
The expectations for U.S. policy were too optimistic."
https://www.msn.com/en-us/money/markets/a-global-rebalancing-is-well-underway-as-investors-sell-off-us-bonds/ar-AA1DbWgO