As global trade tensions fall into chaos again, the status of the dollar as a traditional safe-haven currency is under threat. Last Friday, the dollar weakened comprehensively against major currencies, with the dollar index falling below 100, hitting a new low since April 2022. Market safe-haven funds have flocked to other currencies like the Swiss franc and yen.
Data shows that the dollar fell 0.71% against the Swiss franc, at 0.81795, nearing its lowest level since January 2015. This week's cumulative decline of the dollar against the franc is expected to mark the largest record since November 2022. Meanwhile, the dollar dropped 0.24% against the yen, to 144.05, reaching an intraday low not seen since September 2024. The euro performed particularly strong, rising 0.85% against the dollar, to 1.12970, the highest since February 2022, with its weekly gain reaching a new two-month high.
Market analysis suggests that the dollar's weakness is not merely a technical correction but stems from a deep-seated confidence crisis. Brad Bechtel, global head of foreign exchange at Jefferies, pointed out that the "exceptionalism" of the U.S. economy is losing its convincing power. The rising expectations of an economic recession have prompted investors to withdraw safe-haven funds from the dollar, directing them toward traditional safe-haven assets like the yen and Swiss franc. Meanwhile, U.S. consumer confidence in April sharply deteriorated with 12-month inflation expectations soaring to 6.7%, the highest since 1981, further weakening dollar support.
The turmoil is not limited to the currency market, as the U.S. bond market is also affected. The yield on 10-year treasuries recorded the largest weekly increase since 2001, indicating a fundamental shift in the direction of safe-haven funds. Although the main Wall Street indices stabilized and recovered late last week, global investors' anxiety about the U.S. policy path and economic outlook continues to rise.
The uncertainty of the trade war is the main cause of this turmoil. The Trump administration's fluctuating stance on import tariffs has caught investors off guard. While pausing tariffs on some trade partners, the structural conflict between the U.S. and China remains unresolved, disrupting global trade routes and indirectly impacting markets such as oil and gold.
In Europe, confidence in the eurozone is stronger. European Central Bank President Lagarde stated last Friday that the ECB is ready to use all tools to maintain financial stability, emphasizing its strong track record in dealing with financial turbulence. This statement boosted confidence in the euro, with the euro rising 0.27% against the pound and the pound appreciating 0.67% against the dollar, reaching $1.30540.
Meanwhile, the dollar's weakness is also pushing up non-yielding assets like gold. Spot gold surpassed $3,200 per ounce, setting a historic high and becoming the preferred safe haven following the "capital flight" in this round of market withdrawals.
Overall, the dollar is currently under multiple pressures: on one hand is the uncertainty of economic prospects, on the other hand is the shift in global safe-haven fund routes. Future dollar trends will highly depend on the Federal Reserve's policy pace, trade negotiation progress, and guidance from economic data. Market sentiment is already highly sensitive, and any minor disturbance could trigger another wave of volatility.
