President Donald Trump’s dramatic so-called ‘Liberation Day’ rollout of universal tariffs could signal the beginning of the end of the US dollar’s status as the ultimate safe-haven currency.
The sweeping, universal tariffs on all US imports, unveiled in a defiant announcement from the White House, marks a sharp escalation in global trade tensions and a radical departure from decades of open-market policy.
The dollar may spike in the short term, as investors react to the shock by retreating into what they think is safety. But the nature of this ballooning crisis is different. The threat is coming from inside the US, and the dollar’s safe-haven status might not hold under sustained inflation, weakening real yields, and growing distrust in American economic leadership.
Universal tariffs reduce imports, and by extension, the demand for foreign currencies. That can lift the dollar, at least mechanically. In the early stages of the announcement, the dollar strengthened against emerging market currencies and commodity-linked peers, as global risk aversion took hold.
“Investors tend to reach for the dollar reflexively when things get rough. But this is a fundamentally inflationary policy that undermines the dollar’s long-term strength,” said wealth manager Nigel Green, CEO of deVere Group.
Tariffs will raise costs on a broad swathe of consumer and industrial goods, feeding into higher prices across the board. Trump is also aggressively lobbying for interest rate cuts. The market is looking at a weaker growth outlook combined with rising prices and political pressure on the Fed to stay dovish. That’s a textbook setup for dollar weakness over the medium term.
Ultimately the Fed is being put between a rock and a hard place: cut rates to shore up the US economy, which will be damaged by higher tariffs, or raise rates to control inflation, which will rise…again as a consequence of higher tariffs. In some respects the Fed may be better off sitting on its hands.
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Dollar reserve currency status under threat
The dollar’s reserve currency status is built not just on the size of the US economy, but on trust: trust in its institutions, in the rule of law, and in its commitment to relatively open trade. Blanket tariffs attack that foundation directly. If the world begins to see the US as an unreliable trading partner, or one that uses its currency and economic size as a weapon, that changes everything.
We could be witnessing the early stages of global moves away from the dollar as the ultimate safe-haven currency. The ongoing rise in the price of gold is reflective of this, a trend driven by Asian central banks since 2022.
Central banks selling US Treasuries
Already, there are signs of strain. Central banks in China, Russia, and parts of the Middle East have been gradually reducing their reliance on US Treasuries. The rise of digital currencies and bilateral trade agreements in non-dollar denominations further suggest a slow but real shift in the global monetary order. As retaliation builds from Europe, China, and other major economies, the dollar could come under sustained pressure.
If real yields fall, trust erodes, and America is seen as the source – not the shield – of global instability. Some forex analysts believe the dollar could begin to lose its unique safe-haven advantage. It represents a major shift for the forex market on a scale not seen since the Bretton Woods agreement.
Don’t bank on the Dollar in a crisis
Investors will have to position accordingly. Holding only USD-based assets or assuming the dollar will always outperform in a crisis is no longer a viable strategy. Tariffs will bite. Inflation will rise. And if the rest of the world sees the US abusing its monetary power and abandoning open trade principles, the shift away from the dollar will accelerate. This could indeed be an historical turning point for the US currency.
Some fund managers remain bullish however. Marco Pabst, CIO at fund manager Arbion, said that the USD has now sold off faster than during Trump’s first term. “It appears that buying USD at current levels might be an interesting trade, considering that EUR and GBP appear expensive, looking at their fundamentals.”
Pabst added that although the headlines imply a market panic, US equity trading volumes are not (yet) at record levels. “Selling pressure has been orderly and shows no signs of a crash,” he explained. “Credit markets are trading well-behaved with spreads only moving marginally and remain very liquid, indicating that this is an insulated event within US equities, offering potentially interesting entry levels soon.”
