In a plot twist worthy of a financial soap opera, the US dollar—once the shining beacon of global stability—is starting to look suspiciously like another casualty in President Trump’s war on trade. This week, the dollar slid to its lowest level in six months, much to the dismay of investors already nursing bruises from Treasury selloffs and tariff-induced migraines. Even news that Trump would delay tariffs on certain consumer electronics offered only a momentary lift. After all, he made it abundantly clear that this reprieve was “temporary” in the way that American Idol winners are “permanent” chart-toppers.
The combination of a plunging dollar and tanking Treasuries—those supposed paragons of safety—is becoming a horrible, toxic mix.
Indeed, the dollar’s steady decline—down 6.1% year-to-date, en route to its worst annual performance since 2017—has prompted a flurry of hedging in the options market. The demand for dollar puts (bets on further decline) has surged, signalling a clear shift in sentiment. Once the world’s ultimate haven in times of turmoil, the greenback is acting a bit more like a high-beta stock in a junk bond suit.
Even Treasuries aren’t getting a pass. While they enjoyed a modest bounce on Monday, it came on the heels of the most significant weekly surge in 10-year yields in over two decades, sparked by Trump’s tariff theatrics. Investors are now openly wondering whether the sacred status of US assets as “risk-free” needs to be retired altogether—alongside floppy disks and dial-up internet.
We may be witnessing a regime shift. The Treasury market isn’t looking particularly secure either. A regime shift indeed—though one suspects this one won’t come with an orderly power transfer. Nearly 80% of respondents in a Bloomberg survey now expect the dollar to weaken further in the next month—the most bearish reading since polling began in 2022. This isn’t a dip. It’s a shift in belief.
Wall Street’s elite slowly accept that Trump’s tariffs aren’t a temporary detour, but a full-blown rerouting of the global economy.
If that sounds eerily familiar, it’s because history offers a cautionary tale. The Smoot-Hawley Tariff Act of 1930 was similarly ambitious. It, too, was meant to “protect American prosperity.” It also coincided with the most profound economic depression of the 20th century. There is no doubt that Trump believes this time is different.
When the risk-free asset becomes the risky bet, it’s no longer just markets that should worry. Monetary history itself might need a rewrite.