The last ten days have thrown into doubt the role of the United States at the core of the global economic and financial system.
The big picture: After generations in which the U.S. dollar and its government securities have been the world’s bedrock safe haven assets, global investors woke up this week to the possibility that they are not particularly safe, and not at all a haven.
Zoom out: The kinds of shifts in the global trade order and financial markets that usually play out over years were compressed into days since President Trump announced “reciprocal tariffs” on April 2.
- People will write books about April 2025 the way they have about July 1944, August 1971 or September 2008.
- It’s the curious way bond and currency markets have interacted that gives the most alarm about the trajectory of global confidence in the U.S.-centric financial order — which has prevailed since the end of World War II.
State of play: In a week that risky assets sold off, so did U.S. Treasury bonds and the U.S. dollar.
- This is not normal. In past episodes of extreme tumult, like September 2008 and the early days of the pandemic in 2020, the dollar rallied as global investors sought safety.
By the numbers: The yield on the 10-year U.S. Treasury note closed the week at 4.5%, up half a percent from a week earlier. That level is not worrying (rates were higher as recently as January) but the speed and direction of travel are.
- Meanwhile, the dollar index — the dollar’s value versus six other major currencies — is down 9.3% since mid-January.
Between the lines: It suggests that erratic leadership, ballooning fiscal deficits, and rapidly eroding diplomatic ties are making global investors wary of being too exposed to the United States.
- The market, Deutsche Bank currency strategist George Saravelos wrote, “is re-assessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarization.”
- In the medium term, this could mean structurally higher U.S. interest rates and more market pressure to reduce deficits.
The bottom line: Markets can behave weirdly, and maybe this will turn out to be just a few bumpy trading days.
- But the world’s most important financial markets — for the dollar and Treasury securities — are signaling that something fundamental is shifting beneath our feet.