Singapore: In an amazing switch from the long-held belief of being a worldwide safe-haven currency, the dollar now faces increasing skepticism. The hilarious last minute erratic tariff decisions by what President Donald Trump had to say shook the stability of the country's global economy. Within a few days, it plunged to multiyear lows against the major currencies, igniting panic among investors and sending shock waves through global markets.
The primary cause: abrupt tariffs recently announced by the Trump administration to both allies and rivals, and in some instances, reversals of policy, which have shaken confidence in the leadership of the United States. Analysts have said that such unpredictability had "stripped away" the dollar's image of being a symbol of financial safety and has now made foreign investors scurry to other more stable options such as the Swiss franc and euro.
Experts such as Ray Attrill from National Australia Bank argue that in this ongoing trade war among nations, probably, the economy of the United States is going to be more adversely affected compared to the other nations. Evident in their actions as Treasury markets reflected the uproar was an increase in the cost of borrowing at the speediest level since 1982. Investors are now demanding a higher rate of return for lending dollars to the US- much higher, in fact, than for many ailing European economies such as Greece and Italy.
A loss of confidence in the dollar, even if it were to be fleeting, would have serious effects on the $33 trillion foreign investment in US stocks and bonds. Rising interest rates and rising inflation would hurt both bondholders and stock markets.
Analysts who maintain that this is a temporary spike in behavior disapprove of this seemingly rosy view. The present erosion of the credibility of the dollar, they argue, heralds a longer-term shift in the global financial order, one in which the U.S. may no longer hold the unabated top spot.
[Source Credit: The News]
