I had a lively chat with some investors today, turning the public holiday (and the first day of school breaks!) into an impromptu market roundtable. What is going on? The US dollar is slipping while cash drifts into gold and every other “anything-but-greenback” hideout. I know, I know. The dollar’s once-shiny safe-haven halo looks a tad tarnished.
Why the wobble? Word is that price sensitive big players are trimming their Treasuries, nudging yields higher. Ballooning US deficits, policy zig-zags, and Washington’s habit of weaponising its own financial plumbing have everyone on edge. Add the never-ending Trump’s tariffs drama, and nerves ratchet up another notch.
In the world of macro investing, the US dollar does not just reflect what is happening and it sets things in motion. It helps shake things up across markets. When Treasury yields rise, prices fall for current bondholders. Their current Treasury bonds become less valuable, weighing on their portfolios.
Yet a wholesale Treasury dump is not on the menu. Selling is only half the puzzle because the real headache is where on earth to park that mountain of cash next. No other market is big enough to swallow it, and shovelling more into Euros or Yen would supercharge those currencies, hurting their exports and economies.
Even investors exasperated by Trump’s tariffs cannot fully bolt for the exits. Yes, despite the grumbling, the world is not abandoning dollar assets. It is simply diversifying around the edges. On another note, the recent Moody’s downgrade rationale on the US government’s credit rating is based on known factors and the news shock presents a relative value opportunity.
Regardless of the trend against other major currencies over the next 12 months, the greenback is still the core of the global system, just with a few more people questioning its role. A lot of people mix up the idea of the dollar losing value with dedollarization but they are really not the same thing.