Source: Global Market Express
Russell Investments stated that a significant shift in U.S. trade and foreign policies might enhance the appeal of the euro as a safe-haven currency, as this change increases the risk of "financial protectionism" intensifying in Europe and Asia, which could put pressure on the dollar in the coming months.
Van Luu, global currency manager at Russell Investments, said that the meeting between Ukrainian President Volodymyr Zelenskyy and U.S. President Donald Trump in late February, followed by Germany's fiscal response measures and then Trump's chaotic tariff plans, marked the beginning of a new phase where sovereign investors will reassess their exposure to U.S. assets.
"I think we will see some form of financial protectionism or financial nationalism," he said in an interview. "Even though Europe, Japan, and South Korea remain allies of the U.S., they may feel that they should not place all their bets on America when it comes to capital allocation."
He added that Japan and South Korea have been relatively low-key about Washington's stance on Kyiv, "because this traumatic event did not happen on their doorstep"; "but Japan and South Korea hold large amounts of U.S. Treasury bonds. I think they are now starting to consider whether they should diversify their reserves."
Luu pointed out that a key feature of the Japanese yen and Swiss franc as safe-haven currencies is that both countries have large current account surpluses and are thus net creditor nations; similar situations might arise if Germany and other European countries slow down their capital outflows to the U.S.
"I am starting to think that the euro may become one of the currencies with rising status as a safe-haven currency," he said.
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