The end of dollar dominance? Not so fast
The US dollar’s decline reflects tariff-driven demand shocks, investor rebalancing and policy uncertainty, not a loss of reserve currency status.
We don’t believe the US dollar’s recent depreciation and the broader sell-off of US assets stems from a loss of faith in the status of the dollar as the global reserve currency.
Instead, we think the sell-off of the US dollar, fixed income, and equity markets has been driven more by three developments unique to the tariff shock.
First, the hit to demand is larger in the US, triggered by an initial rise in inflation, than in the rest of the world, where the demand shock is more straightforwardly disinflationary.
Second, international investors were overexposed to US assets, and this episode has prompted some rebalancing.
Third, acute policy uncertainty has contributed to the dollar’s short-term decline.
Still, the dollar’s reserve status could be undermined if the current cyclical pressure on US assets develops into longer term, structural pressure.
Download our report to learn more about:
- How exactly do these three developments drive the sell-off in the financial market?
- How long will these three factors depress demand for US assets?
- What could cost the US dollar its reserve status?
