The sharp fall in the dollar over the past three months can for the most part be explained by a rapid reassessment of the outlook for the US economy and financial markets, rather than an imminent threat to the dollar’s dominant status in global finance. Our base case is that value of the dollar will stabilise and that it will retain its special role. But the Trump administration’s unconventional approach across a range of policy areas will probably cause some longer-lasting damage to confidence in the US as a safe haven, as well as erode some of the dollar’s role and/or hasten the search for alternatives.
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