Safe Havens Shift: Dollar Loses Its Edge Amid Tariff Turmoil
- admin cys
- Apr 10
- 3 min read
A Report by CYS Global Remit Counterparty Sales & Alliance Unit
Investor Sentiment Wavers as U.S. Tariffs Shake Global Confidence
The U.S. dollar, traditionally seen as one of the safest assets in times of global financial instability, is rapidly losing its luster in the face of intensifying economic uncertainty and the shockwaves of broad new tariffs announced by President Donald Trump. These sweeping trade measures, targeting some 60 countries including China and America’s largest trade partners, have unsettled markets and dented confidence in the greenback’s role as a go-to safe haven.
Typically, the dollar rallies in tandem with falling U.S. equities as investors seek refuge from market volatility. Yet, recent trends show both the S&P 500 and the dollar declining simultaneously—a rare and troubling signal. Market strategists and institutional investors are starting to reconsider the dollar’s safe-haven status, citing the home-grown nature of the current risks, particularly the recessionary pressures the tariffs may unleash.
Russell Investments’ Van Luu, a long-time proponent of the dollar alongside the yen and Swiss franc as top-tier safe-haven currencies, acknowledged a shift in stance due to the dollar’s recent underperformance. Data from LSEG highlights a nearly 4% decline in the dollar index this year—its worst start since 2016. Rong Ren Goh of Eastspring Investments adds that fading U.S. economic exceptionalism is prompting capital to rotate out of American assets, further weakening the greenback.
Still, there remains cautious optimism among some analysts that the dollar could reclaim its status should global growth deteriorate further, especially if alternative havens begin to lose favour under prolonged pressure.
A Flight to Gold, Yen, and Bonds in Search of Stability
While the dollar’s shine has dulled, other traditional safe-haven assets have surged. Gold has resumed its historic role as the ultimate crisis hedge. Prices have soared above $3,000 per ounce, nearly doubling over the past two and a half years. Investors across the spectrum—from central banks to individual buyers—are continuing to accumulate the precious metal, undeterred by easing inflation. Trump’s increasingly isolationist stance is only accelerating this trend, with gold emerging as a liquid and trusted alternative to the dollar.
Meanwhile, Japan’s yen has rallied significantly, recording its best daily gain against the dollar since September and rising about 7% year-to-date. The Swiss franc has also appreciated by over 4%, underscoring investors' preference for currencies less directly tied to U.S. policy instability. As Justin Onuekwusi from St. James’s Place noted, the yen’s tendency to perform well during U.S. equity market volatility has made it an increasingly attractive choice.
Defensive stocks are also seeing renewed interest. In periods of financial stress, sectors like healthcare, utilities, and consumer staples—known for stable earnings—become magnets for risk-averse capital. Despite the absence of an official recession declaration, defensive stock indices have outperformed cyclical ones since Trump’s November re-election campaign launch, indicating elevated investor caution. The sharp correction in high-flying sectors like tech and AI further reinforces the appeal of these resilient industries.
Bond markets, too, are benefiting from renewed demand. With global investors seeking safety, yields on government bonds have dropped significantly. Germany’s 10-year Bund yield has fallen from recent highs, while U.S. Treasury yields tumbled more than 10 basis points in a single day—their steepest weekly fall in over a month. Although these moves partly reflect safe-haven buying, they also signal deeper fears of recession and the growing possibility of central banks resuming rate cuts to counter slowing economic activity.
Eric Clark of Alpha Brands interprets the bond rally as a strategic move: “This self-created chaos may be designed to create panic,” he argues, suggesting that the U.S. could be exploiting uncertainty to lower borrowing costs and refinance trillions in government debt at more favourable rates.
Conclusion: A Redefinition of Safety
The landscape of safe-haven investing is shifting, with the dollar temporarily ceding ground to gold, the yen, and even traditionally defensive equity sectors. The implications of Trump’s aggressive trade policy and its economic ripple effects are still unfolding, but one trend is clear: investors are no longer treating the U.S. economy—and its currency—as immune to risk. Until policy clarity returns, and recession risks are better understood, the flight to alternative shelters may continue, redefining the global safe-haven hierarchy in the process.
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