Coastal Enterprise April 14th (Editor Xiao Xiang) As Trump administration's back-and-forth on electronics tariffs over the weekend once again made the world experience its unpredictable policies, the dollar index further declined during the Asian session on Monday (April 14th). An increasing number of fund managers have warned that the status of the US dollar as a global capital haven may be threatened due to the uncertainty of Trump's tariff policies and the rising trade barriers.

Market data shows that ICE dollar index fell to a low of 99.34 during the day, continuing the downward trend since last week. At the same time, the Bloomberg dollar index also fell by 0.4%, approaching the lowest level since October last year.

According to industry compiled data, the three-month risk reversal indicator of the Bloomberg dollar index - the difference between call options and put options - has fallen to the lowest level since March 2020, when the global pandemic was at its worst. Last week, this indicator fell below zero for the first time in five years, indicating that the demand for bearish options benefiting from a weaker dollar is greater than the demand for bullish options benefiting from a stronger dollar.

Holding data also shows that a batch of speculative traders including hedge funds and asset management companies are turning to short the dollar, currently creating the largest scale of shorting the dollar since October last year. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that as of the week ended April 8, they held about $430 million in net short positions on the dollar through these bets.

Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne, said: "The market's aversion to holding dollars remains high. The doubt about the dollar is not something that can be solved overnight, which suggests a potential major structural change."

Many analysts said that Trump administration's policy of imposing punitive tariffs on U.S. trading partners is weakening investors' confidence in the dollar as the cornerstone of the global financial system.

The erratic nature of Trump's tariff policies was vividly demonstrated over the weekend:

The U.S. Customs and Border Protection initially quietly released updated tariff codes, exempting categories of goods such as mobile phones, computers, semiconductor equipment, integrated circuit devices, etc., but by Sunday, Trump and his senior trade officials released contradictory messages, stating that the exemption for electronic products and components was temporary and that separate tariffs on electronic products would soon be introduced.

In response, Dane Cekov, senior macro and currency strategist at Sparebank 1 Markets AS in Oslo, said, "For the dollar to continue to rise, a rapid and peaceful resolution of the trade war is needed to avoid long-term damage to the U.S. economy. As the impact of Trump's tariffs becomes apparent in hard data such as consumption, inflation, and labor markets, the dollar will continue to weaken over the next few months."

The Collapse of the Dollar's Throne

Over the past few decades, the relative stability of the U.S. economy has allowed the dollar to serve as the world reserve currency and be held by central banks around the globe. This has enabled the U.S. government to borrow at lower costs and finance the so-called "double deficit" in its current account and government budget.

However, fund managers said that affected by Trump's aggressive trade agenda, U.S. stocks, bonds, and the dollar have all been sold off recently, indicating that international investors have lost confidence in U.S. assets. Bob Michele, chief investment officer of J.P. Morgan Asset Management, believes that "there is ample reason to believe that the uniqueness of the dollar has come to an end."

Bert Flossbach, co-founder and chief investment officer of Germany's largest independent asset management company Flossbach von Storch, said: "Trump's chaotic tariff policies have undermined America's safe-haven status."

Without a doubt, the recent continuous decline of the dollar is quite unusual - usually, global financial stress strengthens the dollar because investors rush to buy dollar-denominated assets such as U.S. Treasury bonds seen as havens. However, last week, both the dollar and U.S. Treasuries were subject to heavy selling pressure.

Kathy Jones, chief interest rate strategist at Charles Schwab, said in an article on X that the simultaneous fall of U.S. Treasuries and the dollar "indicates concerns among domestic and foreign investors about the prospects of the U.S. economy."

In other words, a comprehensive "sell U.S. assets" trade may be brewing.

Brad Setser, a researcher at the Council on Foreign Relations, pointed out that "the increase in U.S. policy uncertainty could lead to changes in the use of the dollar in the global economy."

Edward Fishman, author of the book "Chokepoints" about economic warfare, also said that besides Trump's tariffs, the White House's threats to the rule of law and the independence of the Federal Reserve may also harm the appeal of the dollar. He predicts that over time, this could lead to a shift toward a "multipolar" system where currencies like the euro will play a larger role.

Mike Dickson, head of research and quantitative strategy at Horizon Investments, warned in an interview with the media last Friday that "all of this actually indicates that investors are coordinating their exit from U.S. assets. This trend is likely to continue in the short to medium term."

In addition, George Saravelos, co-head of foreign exchange research at Deutsche Bank, believes that "we are witnessing the simultaneous collapse of all U.S. asset prices, including stocks, the dollar, and bonds. We are entering uncharted territory in the global financial system. The sudden drop in demand for the dollar also indicates that countries are reconsidering their reliance on it, even though the dollar has been the main reserve currency in the world for nearly a century."

"A month ago, we pointed out that issues such as the ownership of Greenland would undermine the stability of the dollar," Saravelos noted. "We suspect that the U.S. government must now take a more conciliatory stance in its international relations to maintain the stability of future bond markets."

(Coastal Enterprise Xiao Xiang)

Original source: https://www.toutiao.com/article/7493026365248160294/

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