The U.S. dollar extended its slide against other major currencies on Monday, the latest sign that investors may be starting to shun what has long been the safest haven in global financial markets.
An index that tracks the dollar against a basket of major trading partners fell for a fifth straight day, even as U.S. stocks and bonds rallied. The dollar has fallen by roughly 8 percent this year, trading near a three-year low.
There has been a particularly steep decline since President Trump announced tariffs on nearly every country’s imports a few weeks ago. The dollar has lost value against the euro, the yen, the pound and a host of other currencies, making imports from those countries more expensive for Americans, even before tariffs are applied.
Investors and many of Mr. Trump’s advisers had expected the dollar to strengthen as tariffs were put in place, given the conventional wisdom that the levies would discourage Americans from purchasing imported goods and in turn reduce the demand for foreign currency. Scott Bessent, the Treasury secretary, argued that the dollar’s appreciation would be significant enough to offset a rise in inflation.
But the magnitude of the tariffs that Mr. Trump has announced has been more substantial than many expected, unleashing turbulence acute enough to raise questions about whether U.S. assets have lost their luster. On multiple days in recent weeks, when the dollar was selling off, so too were U.S. stocks and government bonds, a combination that Krishna Guha, vice chairman at Evercore ISI, described as “rare, ugly and worrying.”
In part, the turmoil reflects the confusion about Mr. Trump’s plans for tariffs. Mixed messages about exemptions and pauses, and which products and countries might be hit with new tariffs, have rattled investors who have long seen dollar-denominated assets like U.S. Treasury bonds as the surest thing in finance.
“Both institutional investors and central banks are having to begin to think about what would happen should the dollar and the Treasury market no longer be the safe haven,” said Joe Brusuelas, chief economist at the consulting firm RSM.
Sharp moves in the value of the dollar can have a destabilizing effect on the global economy, because it serves as a central pillar of the financial system. The dollar is on one side of nearly 90 percent of all foreign-exchange trades, according to the Bank for International Settlements, from Americans abroad using their credit cards to large corporations making billion-dollar takeovers. Essential commodities, like oil, are also typically priced in dollars, regardless of who is buying or selling.
Brad Setser, a senior fellow at the Council on Foreign Relations who previously worked at the Treasury Department, said there were reasons not to read too much into the dollar’s sell-off.
For nearly a decade, U.S. assets have been among the best performers in the world — consider the “Magnificent Seven” tech stocks that propelled the S&P 500 and Nasdaq to a series of record highs.
“A lot of the money coming into the U.S. hasn’t been coming to the U.S. seeking safety. It’s been coming to the U.S. seeking yield and chasing the run up in U.S. equities,” he said. “In that context, when there’s a general move to reduce risk — because the world certainly seems a lot riskier after Trump’s tariff announcement — some of that money that was betting on U.S. outperformance and the U.S. continuing to offer outsized returns is being unwound.”
Economists now see much higher odds of a recession in the United States because of escalating trade tensions. That may mean the Fed will be compelled at some point to start lowering interest rates to protect the labor market. Lower rates make holding dollar-denominated assets less appealing, which could put more pressure on the currency. While the bar for future cuts appears high given that inflation is poised to rise as growth slows, signs that the economy is hurtling toward a recession could change the central bank’s approach.
If that transpired, Christopher J. Waller, an influential Fed governor, on Monday said he would support cutting rates “sooner and to a greater extent” than initially expected. In a speech, he also acknowledged the turbulence caused by Mr. Trump’s tariffs, saying it was an “understatement to say that financial markets did not respond well” to them.
Even Mr. Setser acknowledged that there may be something more fundamentally worrying to the dollar’s slide than simply a shift in expectations about the economic outlook.
“It is not crazy to think that after a period of exceptional policy volatility in the United States and with real risk of recession, that some foreign investors might wonder whether they should continue to put an ever increasing amount of money into the United States,” he said.