Death of the Dollar ...

The dollar was at risk of losing its safe-haven status at the height of US tariffs uncertainty in April, as foreigners sold the currency fearing further declines in its value, the International Monetary Fund said.

In its latest outlook on fragility in the financial markets, the IMF said some foreign investors became “net sellers” of the dollar in the aftermath of President Trump’s “Liberation Day” announcements, the reverse of the usual trend where investors seek the safety of the US currency at times of high volatility.

The dollar fell sharply on April 2 as traders dumped the currency over worries about US protectionism and to hedge against future declines. The IMF said that selling by foreign investors “was stronger and more persistent, suggesting evolving shifts in market responses to uncertainty”.

The US currency depreciated more than 10 per cent in the first half of the year, its largest slide in almost 50 years. The pace of the depreciation slowed after the Trump administration announced a 90-day pause on tariffs later in April.

Ken Griffin, chief executive of Citadel, one of the world’s largest hedge funds, said on Monday he was “concerned” about the dollar losing its position as a safe haven for investors to assets like gold.

Gold prices hit a fresh record of $3,983.60 an ounce this week over worries about the US government shutdown, inflation in developed market economies and the ability of America to hit countries with dollar-based financial sanctions. Analysts at Goldman Sachs have estimated gold could trade at $5,000 by the end of next year.

“We’re seeing substantial asset inflation away from the dollar as people are looking for ways to effectively de-dollarise, or de-risk their portfolios vis-à-vis US sovereign risk,” Griffin said.

“Inflation is substantially above target and substantially above target in all forecasts for next year. You now see individual investors around the world go: ‘You know what? I now view gold as a safe harbour asset in a way that the dollar used to be viewed.’
That’s what’s really concerning me.”

The IMF warned that the $10 trillion foreign exchange market remains “vulnerable to adverse shocks. That means policymakers should strengthen surveillance to monitor systemic risks arising from market stress. Enhancing liquidity stress tests and conducting scenario analysis are essential to assess specific funding vulnerabilities across financial institutions.”

Mehreen Khan Economics Editor at The Times today.
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