Karthik Sankaran in Phenomenal World:
Donald Trump’s second term as President of the United States has not been very good for the dollar. The most recent blow to the currency came when the ratings agency Moody’s stripped the US of its AAA rating. When Standard & Poor’s downgraded the US in 2011, the dollar rallied and Treasury yields fell. This time around, however, the market reaction was different—an extension of the pattern established immediately following the announcement of sweeping global tariffs on April 2. In 2011, the Eurozone crisis was reaching a crescendo, making the dollar the safest haven in the international system. In 2025, the voluntary nature of the crisis has triggered considerably different market behavior. Contrary to the expectations of most economists (including administration officials charged with economic policy making), the so-called Liberation Day tariffs led to a sharp weakening of the dollar and momentary spiking of Treasury yields.
This in turn has fueled speculation of a broader flight from US assets, marked by a Munchian cover story in The Economist raising the shrieking specter of a dollar crisis. There has also been a mounting stream of stories and commentary that US policies were fueling a broader turn in sentiment against the currency—as suggested in this article about China looking at alternatives to US Treasuries, in invocations by Japan’s finance minister of the country’s US bond holdings as a possible negotiating card, and warnings that Asian countries could decide to reduce their exposure to US assets to the tune of $7.5 trillion.
The months since April 2 have clarified the multiple contradictory desires of the Trump administration vis-a-vis its position in the global economic hierarchy.
More here.
Enjoying the content on 3QD? Help keep us going by donating now.