If history has taught us anything, economic fundamentals eventually catch up with political bravado. As we move deeper into 2025, the U.S. dollar remains a beacon of strength—at least on the surface. The Greenback has surged against most major currencies, reflecting a classic “flight to quality” as global investors scramble for safety in a world increasingly dominated by economic uncertainty. But behind this temporary triumph lies a precarious reality: the very policies boosting the dollar today could ultimately lay the groundwork for its downfall.

President Donald Trump has unleashed a new era of economic nationalism, doubling tariffs on China, slapping 25% levies on Canada and Mexico, and introducing reciprocal trade barriers against any country that dares to impose restrictions on U.S. goods. According to the White House, the logic is simple: tariffs will force companies to bring production back to the United States, creating jobs and making “America Great Again.”
The reality, however, is far less appealing. The global economy relies on interconnected supply chains, and Trump’s policies throw a wrench into the machinery. With production costs rising and trade flows shrinking, the consequences are twofold: first, inflation is making a dramatic comeback as businesses pass on higher costs to consumers; second, global trade volumes are contracting, reducing corporate profits and setting the stage for a brutal equity market correction.

In times of economic turmoil, investors instinctively flock to safe-haven assets, and the U.S. dollar has long been the primary beneficiary of such moves. With global trade slowing, equities are under pressure, and fiscal policy uncertainty is causing demand for treasuries and the dollar to soar.
This aligns with historical trends—the USD benefits from capital inflows whenever financial stress increases. For now, at least, the U.S. remains the world’s ultimate safe haven. But what happens when markets question whether America’s fiscal trajectory is sustainable?

While Trump’s policies are inflationary in nature, the Federal Reserve’s role in this unfolding drama is critical. With rising import costs and a tight labour market, inflation is making an unwelcome return. The Fed, already wary of its credibility, may find itself forced to raise interest rates to contain inflationary pressures—precisely the opposite of what the White House wants.
In theory, higher rates would keep inflation in check. Still, they would also increase the cost of financing the federal deficit, which brings us to another ticking time bomb: the Republican approach to fiscal policy.

Republicans have long marketed themselves as champions of fiscal responsibility. In practice, however, they are currently engaged in a reckless game of tax cuts and unchecked spending. The latest budget resolution includes up to $4.5 trillion in tax reductions while expanding military and infrastructure spending. The result? A ballooning deficit that will require constant financing through debt issuance.
At some point, even the most ardent dollar bulls must acknowledge the contradiction: how long can a country continue issuing debt at an accelerating pace before investors demand a higher risk premium? With deficits soaring beyond $2 trillion annually, the Fed may be forced to keep rates high to combat inflation and ensure that U.S. debt remains attractive to buyers.

For now, markets still have confidence in the U.S. system. The dollar remains strong, Treasuries continue to attract buyers, and America’s role as the global financial anchor is intact. But history is littered with examples of reserve currencies eventually losing dominance.
If inflation continues rising while growth stagnates—a scenario eerily reminiscent of stagflation—investors might start looking for alternatives. The moment confidence erodes, the entire Trump economic experiment could unravel, triggering a crisis that would make the 2008 financial meltdown look like a minor hiccup.

The euro should be the natural candidate if the world were searching for an alternative to the dollar. Yet, instead of capitalising on America’s policy missteps, the eurozone remains entangled in its structural weaknesses.
Europe’s inability to coordinate a unified economic policy, sluggish growth, and persistent political fragmentation have kept the euro in a weak position. In addition to the ongoing debates over fiscal policy, energy security, and military spending, it becomes clear why the single currency fails to present itself as a credible alternative to the USD. As trust in traditional financial systems diminishes, cryptocurrencies have gained renewed attention. While still highly volatile, digital assets like Bitcoin and Ethereum offer an alternative not tied to any central bank or government.
Crypto adoption is accelerating among institutional investors, and the idea of a decentralised financial system is becoming more mainstream. The irony is that Trump’s erratic policies could accelerate a trend he has long dismissed: the move toward a world where financial transactions bypass traditional government-issued currencies altogether.

The U.S. dollar benefits from a perfect storm of global instability, equity market uncertainty, and aggressive fiscal expansion. Yet, beneath this surface-level strength lies an economy walking a dangerous tightrope.
Trump’s inflationary policies, the Fed’s looming rate hikes, and a Republican-led spending spree are all forces that could ultimately turn today’s strong dollar into tomorrow’s crisis currency. The question isn’t whether this strategy is sustainable—it’s how long markets will continue to believe in the illusion before reality sets in.