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The status of the US dollar as a shelter for global capital is under threat of improper policy -making and growing trading barriers, fund managers warn.
On Friday, the currency fell to a three -year low against the euro, expanding a slide that began last week, after President Donald Trump announced steep “reciprocal” tariffs for US trade partners.
The moves have caused an alarm among investors, which warned of a “tectonic change” for the global economy if the dollar could no longer rely on to secure refuge during periods of instability in the market.
“There is (now) a very good case for the end of the US dollar,” said Bob Michael, Chief Investment Officer of JPMorgan Asset Management, with $ 3.6 million under management.
For decades, the relative stability of the US economy has allowed the dollar to function as a world reserve currency – held by central banks around the world.
It allowed the United States to borrow at a low price and to finance “twins” in the country’s current account and its government budget.
But simultaneous sales in capital, bonds and dollar in recent days, fueled by the president’s aggressive trade agenda, he points to loss of faith in US funds among international investors, money managers say.
“Trump’s chaotic tariff policy undermines the position of the United States as a safe shelter,” said Bert Shlosbach, co-founder and chief investment officer of Flosbach von Storch, the largest independent fund manager in Germany.
“Of course, there is a possibility that the increased uncertainty in US politics will lead to a change in the use of the dollar in the global economy,” said Brad Sesser, an associate at the External Relations Council.
Edward Fishmann, author of Tea dotsA book on American Economic Wars says that besides Trump’s tariffs, the president’s threats to the Fed rule of law and independence could also harm the dollar’s attractiveness.
He predicted that over time this could result in a change in a “multipolar” system in which currencies, including the euro, play a greater role.
The fall of the dollar is particularly unusual because global financial stress usually strengthens the currency, as investors are rushing to a dollar denominated, such as US finance bonds, which are believed to have shelters.
Economists also said the currency of any country imposed import duties is expected.
Mike Ridl, a fixed income portfolio manager in Fidelity International, said the recent sharp move is higher in longer government bond yields, combined with a weaker US dollar, looks like a “good capital flight”.
However, the US president’s economic advisers in the past highlighted the costs that came with a strong dollar.
Steven Miran, president of Trump’s Council of Economic Advisors, was discussing the president’s inauguration that the dollar status as a world reserve currency artificially inflated the exchange rate, undermining US global competitiveness.
Economists disputed Miran’s argument and raised concerns that his reasoning could make the Trump administration take further steps to suppress the dollar.
Michael Craussberger, Global Zio with a fixed income among Allianz’s global investors, said: “The more the conflict escalates, people think, what could be the next steps?”
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