The Silent Threat to the U.S. Dollar No One’s Talking About
Investors' confidence in the US dollar is being rocked by fear of policy unpredictables
The initial pronouncement of tariff under “Liberation Day” by Donald Trump was on April 2; the financial markets were affected and the US dollar depreciated.
Although the American stock markets have greatly rebounded since that time, the dollar has still continued falling-an oddity since it normally rises at such tough economic times.Dollar’s silent threat
The reason for this, of course, is that Trump's trading policies raised concern about a recession in America much later in the year. This anxiety makes the dollar less appealing.Liberation Day tariffs
Also, investors are beginning to be skeptical about whether the US dollar will remain as powerful as it has been, and some are even thinking that its global supremacy may be fading.
Room within Deutsche Bank's recent note went, "The world is now experiencing a dollar confidence crisis on an account of spillage effects from 'Liberation Day'.
For nearly 100 years, the US has remained the first world safe haven for investments. Many countries also anchor their currencies to the US dollar, which means they are heavily dependent on their value.
What exactly happened to the dollar?
On April 2 last week-the US government trumpeted the heavy tariffs on imports with effect from many countries-and stocks steeply plummeted as such announcement-eroded confidence in the US economy. This then led to an immense selloff of all US financial assets.Market crash alert
In just three days after the “Liberation Day,” more than $5 trillion worth of the value of the S&P 500-the main stock market index-was wiped off its balance sheet.
Even US government bonds, which are usually considered super-safe investments, were sold. Their prices fell and the US government suddenly had to pay much higher to borrow from people.
The financial markets reacted strongly enough for Trump to announce a 90-day suspension of the bulk of the tariffs on April 9—China included. Beyond this period of grace, investors still hesitate to hold any assets denominated in US dollars.Trump’s policy twist
Thus far, in the month of April, the dollar has depreciated 3% against a basket of major currencies and is now at its lowest level in three years. This alone adds to a near 10% decline since the beginning of 2025.
"Invesors were selling US assets, and that brought the dollar down," Karsten Junius, chief economist at Bank J Safra Sarasin, told Al Jazeera.
He added, "So despite the fact the US equities have been bouncing back since their April 9low, the dollar didn't because people don't trust US economic policy right now."Investor doubts rise
What is so special about the US dollar?
For 80 years, the US dollar has been the dominant reserve currency globally. It is the preferred storage medium for central banks throughout the world.
Many American economic boom boom affected this worldwide status: during world wars I and II, Europe's and Japan's fortunes were devastated.
Up until 1971, the dollar was pegged to the dollar. President Richard Nixon then took the momentous step of unpegging dollars from gold. His move, historically referred to as the "Nixon shock," has made the dollar's presence central to the world's financial system, conjuring interest in it.
After it, the majority of nations switched their currencies from being gold-backed but did not strictly convert into clean floating exchange rates, but rather pegged themselves to the US dollar.
Thus, with its massive importation and export, debt process becomes standard with the dollar. For instance, most Gulf states have pegged their currencies to the dollar since the late 1980s and continue to do so today.Tariff impact on buyers
The might of the dollar does not end at trade. While the US only spans about a quarter of the world economy, it was found that in 2023, more than half (54%) of the world's international exports had been transacted in dollars, according to the Atlantic Council.
Its significance in finance is even more enormous. Approximately 60% of total world bank deposits are in dollars and almost 70% of international bonds are priced in dollars.
And according to the IMF, 57% of international reserves-the money that central banks keep around-are still in dollars.
All of this depends quite a lot on trust in the United States economy, quite a lot on the US financial system, and quite a lot on the US legal structure.
That confidence is now being rattled. "Trump does not in fact care about global rules," economist Karsten Junius said. "And investors are beginning to realize that they have wagered a little bit too much of their capital on US assets."
According to Apollo Asset Management, foreign ownership of US equities reaches $19 trillion, US Treasuries $7 trillion, and US corporate bonds $5 trillion. This is about 30% of global GDP.
If a fraction of above dared to cut back, the dollar would be under serious long-standing pressure.
What happens when the dollar loses value?
In the event that the dollar fails, there are claims amongst some of Mr. Trump's aides that the very fact that the dollar serves as the premier reserve currency keeps US interests from really benefiting. It maintains the value of the dollar too high, rendering American goods relatively expensive for foreigners.
A very senior economic adviser to Trump, Stephen Miran, claimed that a strong dollar harms American businesses and workers because it renders their goods and services relatively uncompetitive in the global marketplace. He articulated that a higher value dollar was one factor that led to the United States losing its edge in international trade, while tariffs were the government's response to the situation.
On a temporary basis, a weaker dollar may favor US factories, making their products cheaper for foreign markets, while also helping to minimize the trade deficit.
The converse is also true. With a lower dollar, imports become pricier, affecting American consumers. "Most people think this will lead to higher inflation in the US," remarked Jose Antonio Ocampo, the former finance minister of Colombia.
He also pointed to rising gold prices as a reason for central banks to hold gold rather than US government bonds.
According to Ocampo, Trump's tariff plans have contributed to decreased faith in the dollar, while other safe currencies have been gaining in value as the dollar faces selling pressure.
As of April 11, the Euro hit a three-year peak at more than $1.14, having gained more than 5% against the dollar since the beginning of the month.
US dollar is still the principal currency.
Trump has enacted measures against US interests, therefore but I believe it will weaken the dollar's positioning over time, said Ocampo.
"Money has flown into the Swiss franc lately. The euro is the main contender to replace the dollar," said Ocampo, adding that a reverse shift has occurred.
At present, the euro constitutes 20% of global foreign exchange reserves, about one-third of the amount held by the dollar.
"If the European Union agrees on the adoption of more common financial policies and brings its markets closer together, then the euro stands to take over," Ocampo stated.
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