Key points
The USD’s reputation as a global safe-haven asset is under pressure as Donald Trump’s policy agenda fuels investor uncertainty. US President Trump has once again escalated his global tariff campaign recently, sending official warning letters to over 20 nations, including Japan, South Korea, and key BRICS members, threatening duties ranging from 25% to 70% effective August 1 if new trade deals aren’t finalised. He also announced sweeping 50% tariffs on US imports of copper and Brazilian goods.
At the same time, Trump’s repeated attacks on the Federal Reserve and pledge to replace Chair Jerome Powell have raised alarms over central bank independence, undermining confidence in US monetary policy.
Investors are increasingly diversifying into alternative safe-haven assets like gold and the Japanese yen. Meanwhile, fiscal concerns tied to Trump’s tax policies, which are expected to add over $3 trillion to the US debt, are weighing on longer-dated Treasuries.
Baseline view
The USD remains the world’s reserve currency, but Trump’s mix of protectionism, political pressure on the Fed, and fiscal expansion is chipping away at its safe-haven status. With the new normal under Trump, which is characterised by volatility and uncertainty, it would take a return to typical conditions for a prolonged period for the USD to revert to its historical safe-haven status, which is unlikely to occur during Trump’s second term.
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