The aggressive rhetoric of President Trump—especially toward the Federal Reserve and its chairman Jerome Powell—along with escalating trade wars and the implementation of the “America First” doctrine, is leading to a decline in confidence in the stability of the U.S. economy and the dollar’s status as a global reserve currency. Financial markets are responding with capital outflows from American assets, and investors are increasingly questioning the status of the dollar and U.S. Treasury bonds as safe havens.
The Trump administration’s undermining of the Fed’s independence further weakens the credibility of American financial institutions. This is reflected in rising yields on 10-year Treasuries and the weakening of the dollar, signaling declining interest from foreign investors in U.S.-issued securities. The dollar index has fallen to its lowest level in three years, dropping 10.77% in just the last 100 days.
Currently, foreign investors hold approximately $31 trillion in U.S. stocks, Treasury bonds, and corporate debt. However, there is a significant risk that, faced with continued political and economic uncertainty, global players will begin gradually reducing their exposure. A potential drawdown in foreign holdings of U.S. assets could have long-term implications for America’s position in international financial markets.
Additionally, a shift in U.S. foreign policy—marked by more forceful demands on allies to co-finance security and pay for access to the dollar—adds to global uncertainty and intensifies international concerns. The situation is further exacerbated by inconsistent U.S. responses to the war in Ukraine, the growing national debt (now at $29 trillion), and projected budget deficits of around $1.9 trillion in 2025.
If trust in the U.S. continues to erode, the world may actively begin searching for alternatives to the dollar as the primary reserve currency sooner than previously expected. As a result, the long-standing dominance of the United States in the global financial system is coming under serious scrutiny. Continued confrontational policies could accelerate profound shifts in the architecture of international finance, ultimately taking a toll on the U.S. economy in the long run.
—Krzysztof Kamiński, Oanda TMS
Disclaimer: The information provided in this publication is for informational purposes only. It does not constitute financial or other advice, is general in nature, and is not directed at any specific individual. Independent advice should be sought before using the information for any purpose.
Source: CEO.com.pl
