On April 21, the dollar index fell below the 99 mark during the trading session, reaching a new low since April 2022. Just three months ago, the index was at a high of 110, and has since retreated by over 10%, reflecting a profound reassessment of the dollar's safe-haven attributes by the market.
The continuous depreciation of the dollar is not due to a single factor, but is a result of a combination of diminished confidence in both U.S. political and economic realms. From questioning the Federal Reserve's independence to foreign capital "fleeing from U.S. bonds," the dollar is undergoing a structural trust crisis.
Safe-Haven Attributes Deteriorate, Dollar Faces "Role Displacement"
For decades, the dollar and U.S. Treasury securities have been regarded as the ultimate havens in global capital markets. However, research from CICC Forex indicates that this traditional role is being overturned recently. Due to rising uncertainties in U.S. domestic and foreign policies, the safe-haven function of the dollar and U.S. Treasuries has significantly weakened, instead showing a fluctuation pattern more aligned with risk assets during market turmoil.
The frequent pressure from Trump on Federal Reserve Chairman Powell to cut interest rates, along with his public assertion of the power to dismiss him, has sparked deep concerns over the Fed's independence, severely undermining investors' confidence in U.S. macroeconomic policy.
Deteriorating Economic Data, Stagflation Expectations Rise
From a fundamental perspective, recent U.S. economic data has been persistently weak. Since January 10, the Citigroup U.S. Economic Surprise Index has plummeted from 14.5 to -19.5, indicating that economic performance has frequently fallen short of market expectations. This has intensified concerns that the U.S. may enter a "stagflation" state—characterized by weak growth and stubborn inflation.
In this context, expectations for the Fed to shift towards a more accommodative stance have quickly intensified. Rate cut expectations surged from 1.2 at the start of the year to 4.2 by early April, causing a sharp decline in U.S. Treasury yields, with the 10-year rate dropping by 62 basis points, providing direct momentum for the dollar's weakening.
Accelerated "Decoupling" from the U.S., Dollar Turns Structurally Weak
Notably, since April 7, despite a rebound in U.S. Treasury yields, the dollar index has continued to decline. This divergence reflects a market shift from "safe-haven inflow" to "structural withdrawal." Some foreign capital is reducing allocations to U.S. Treasuries and dollar assets, instead moving to euro, yen, and other non-U.S. currency assets.
This phenomenon is interpreted by the market as a shift from "flight to safety" to "flight to non-U.S.," moving from pure risk-averse investment towards a strategic reallocation to assets outside the U.S.
Historical data shows that during most economic recessions, the dollar often strengthens due to safe-haven buying. However, this time is different; concerns over the sustainability of U.S. debt and Trump's isolationist tendencies are weakening the dollar's role as a "credit anchor" in the global market.
Conclusion: Shifts in Dollar's Direction, Safe-Haven Anchor Loosening
Currently, the decline in the dollar index is not just a technical adjustment but a reevaluation by investors of the stability of U.S. policy and economic prospects. The "safe-haven myth" of the dollar is facing unprecedented challenges. If the related uncertainties continue to spread, the dollar could enter a more extended period of weakness, while the appeal of assets such as gold, euros, and yen may further increase.
