Could the dollar's safe haven status be at risk?
By Mike Maharrey
web posted March 10, 2025
The U.S. dollar has long served as a safe haven. A Deutsche Bank analyst says that status may be at risk.
Several factors make the dollar a go-to asset during times of uncertainty.
- Its reserve currency status
- The size of the dollar market and its liquidity
- The size of the U.S. economy
- The perception of American political stability
- The number of countries that peg their currencies to the dollar
- Global dependence on the dollar for trade
But other factors appear to be undermining confidence in the greenback, including the swelling national debt, monetary inflation, and de-dollarization.
De-dollarization is of particular concern. The weaponization of the dollar and its use as a foreign policy hammer have made many countries wary of holding the greenback.
These factors appear to be taking a toll on the dollar.
The fact that the dollar weakened against other currencies when tariffs went into effect last week underscores the impact.
The drop in the dollar is counterintuitive. Conventional wisdom says the dollar should have gained given the economic and market uncertainty inherent in a trade war, a bullish environment for haven assets. Gold's rally the same day reflects the safe haven trade.
"What stands out in today's market reaction is that the dollar is not strengthening materially," Deutsche Bank head of FX strategy George Saravelos wrote. "We would not have expected these market moves at the start of the year."
Saravelos notes a decline in the historical correlation between the dollar and other risk assets. He also pointed out the growing U.S. current account deficit. This occurs when a country imports more goods, services, and capital than it exports. Saravelos said this typically marks the limits of dollar "overevaluation."
The U.S. current account deficit hit a record high of $310.9 billion in the third quarter of 2024. That was a 13.1 percent increase from the previous quarter. The Q4 data has not been released.
Saravelos said that landscape for the dollar is changing rapidly as the world adjusts to "a new geopolitical order."
He was specifically referring to the impacts of the trade war, along with the abrupt pullback of American security support in Europe. This has sent the EU scrambling to ramp up defense spending.
According to Bloomberg, Deutsche Bank has reversed its longstanding negative outlook on the euro in light of this defense spending ramp up.
Saravelos emphasized that "the speed and scale of global shifts is so rapid," and that the possibility of the dollar losing safe haven status "needs to be acknowledged as a possibility."
"It is hard to over-estimate the scale of change taking place in global economic and geopolitical relations in a matter of days."
Saravelos said, "Two pillars of America's role in the world are being fundamentally challenged," referring to its role as a security backstop for Europe and its respect for "rules-based free trade."
"Bringing it all together, we are starting to become more open-minded to the prospects of a broader weaker trend unfolding [for the dollar]."
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
