Although the U.S. dollar declined in value against the euro and the British pound under former President George W. Bush during the 2000s, it later rebounded. According to XE’s currency converter, 1 U.S. dollar was worth €0.87 and £0.75as of Wednesday afternoon, April 16.
The U.S. dollar, even with fluctuations, has been the world’s main reserve currency since the end of World War 2. But according to The Economist, the U.S. dollar may be experiencing major vulnerability thanks to the economic chaos being created by President Donald Trump’s steep new tariffs.
In an article published on April 16, The Economist explains, “Stocks down, yields down, dollar up. A reliable relationship between America’s listed companies, government bonds and the value of the currency has held, in moments of panic, for most of modern financial history. Until now.”
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The Economist continues, “The turmoil in financial markets over the past month, driven by an extraordinary rise in American tariffs, has been unsettlingly different. During the stock market slumps of 2008 and 2020, for instance, the dollar rose. When investors are fearful, they normally rush to the safety of American debt, bidding up the greenback in the process. This time round, investors are eschewing Treasuries.”
U.S. Treasury bonds, historically, have been considered safe havens for investors — even during recessions.
But The Economist observes, “Yields on American ten-year government bonds, which rise when prices fall, have increased from 4.2 percent to as high as 4.5 percent over the past month. Meanwhile, the dollar has fallen by over 9 percent against a basket of other currencies since its peak in mid-January. The breakdown of the once-solid relationship reflects the impulsiveness of the current American government. President Donald Trump’s belligerent trade policy, his administration’s incompetent policymaking and some of his advisers’ suspicion about the dollar’s global role have shaken foreign investors.”
According to The Economist, investors “once rolled their eyes at the idea of the dollar being dethroned” — but now, must “take the notion more seriously.”
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“Overseas investors do not lack for reasons to park their money elsewhere,” The Economist notes. “Yet those looking to limit exposure to Mr. Trump’s whims face a challenge: the dollar has no obvious successor.”
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Read The Economist’s full article at this link (subscription required).
