Due to Trump's Tariffs, the Dollar's Global Appeal is Tarnished. It May Be Difficult to Reverse the Damage

Volatility that has rattled global markets in recent weeks appears to be easing, at least for the time being. However, some analysts on Wall Street are warning that President Donald Trump’s aggressive trade policy—particularly his push to implement tariffs—could have deeper and more lasting effects, especially on the U.S. dollar's standing in the global financial system.

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One major concern is that the dollar’s reputation as a dependable “safe haven” during times of market turbulence has taken a hit. Even more significantly, its long-standing role as the world’s primary reserve currency is starting to look less certain.

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Evidence of this weakening confidence in the dollar can be seen in the breakdown of its traditional relationship with other financial markets. Steve Englander, head of G-10 foreign exchange research and North America macro strategy at Standard Chartered, has noted a shift in market behavior that began around April 2—when Trump announced new tariffs, referring to it as “liberation day.” Since then, investors appear increasingly doubtful about the dollar’s strength and reliability.

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Traditionally, when markets are under stress, investors turn to safe-haven assets such as the U.S. dollar, Swiss franc, and Japanese yen. The foreign exchange market, with its around-the-clock trading and daily turnover of $7.5 trillion as of 2022 (according to the Bank for International Settlements), has often provided a refuge when stock and bond markets are in disarray.

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Yet, in recent weeks, that pattern has shifted. The Japanese yen, Swiss franc, and even the euro have all appreciated, while the U.S. dollar has stumbled. The ICE U.S. Dollar Index—which measures the dollar’s performance against a basket of major currencies—recently fell to a three-year low. In contrast, the Swiss franc surged to its strongest level in 14 years, signaling that investors are favoring alternatives to the dollar during uncertain times.

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According to Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie Group, this isn’t the first time confidence in the dollar has wavered. During the early stages of the 2007–2008 financial crisis, the dollar came under scrutiny as the subprime mortgage debacle was seen largely as a U.S.-originated issue. However, once the European debt crisis emerged around 2011, global faith in the dollar was largely restored.

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This time, though, the dynamic feels different. Wizman believes that rather than rallying support for the global financial system, the Trump administration’s tariff policy seems to be undermining the very economic order that the U.S. helped build. The perception now is that the U.S. is stepping away from its historical role as a stabilizing force in the global economy. Instead, the country is seen as actively dismantling its own trade and financial systems—abruptly and without diplomacy.

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Such a dramatic shift could weaken the dollar’s standing not just as a safe-haven asset but also as the cornerstone of the international financial system. If countries begin to reduce their reliance on the dollar, the U.S. could face higher borrowing costs—both for the government and for American consumers. The consequences could ripple through financial markets and directly affect households and businesses.

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Wizman points out a stark contrast between the current climate and the previous financial crisis: “Back then, U.S. policymakers were trying to save the system. Today, it feels like they’re trying to dismantle it.”

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Still, this transformation won’t happen overnight. Atul Bhatia, a fixed-income strategist at RBC Wealth Management, noted that the dollar remains deeply embedded in the global economy due to strong network effects. While the dollar’s share of global central-bank reserves has been gradually declining since the late 1990s—according to the International Monetary Fund—it still dominates global trade. The Swift international payments system reports that nearly half of all global transactions still involve the dollar.

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Despite a recent uptick—breaking a five-day losing streak with a 0.5% rise on Tuesday—the dollar has fallen more than 9% since peaking on January 13. Bhatia suggests that while a short-term rebound is possible, the longer-term trend may point to further weakness. “There could be some tailwinds for the dollar here,” he said, “but over time, we think that investors are going to start focusing more on their own regional markets.”

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Such a pivot could have major implications. With so many foreign investors holding U.S. assets like stocks and bonds, any move away from the dollar could impact not just Wall Street, but also ordinary savers and the broader U.S. economy.

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