King Dollar’s crown has weathered countless storms – but the recent market whirlwind has people asking if this time is different.
Over the past few weeks, global investors have witnessed unexpected turbulence: the reserve currency, long the world’s safe-haven stalwart, took a stunning plunge, and US Treasury bonds were dumped in a selloff unprecedented in its ferocity.
The Dollar Index (DXY) slumped to levels not seen since early 2022, and instead of rallying to safety, bond yields spiked as prices fell. In plain terms, none of this was supposed to happen – in times of turmoil, investors traditionally flock to dollar assets, not flee them.
Is King Dollar merely under stress, then, or are we watching the beginning of a genuine threat to its reign?
At the center of the storm is Donald Trump’s trademark tariff-heavy trade policy – essentially Trade War 2.0. In an upgrade of his earlier playbook, POTUS-47 has ratcheted up tariffs on friend and foe alike, presumably to claw back American trade deficits. Yet each new tariff threat or Twitter outburst from Trump has been met with a deepening rout in US Treasuries. It’s as if bond traders have developed a reflex: Trump opens mouth, we sell bonds.
Yields on US debt jumped at a pace that veteran analysts called alarming, and currency traders delivered their own verdict by pounding the dollar down. Even when Trump abruptly hit the brakes – announcing a 90-day “tariff pause” – the damage had been done. The bond market remained spooked, and the dollar kept sliding.
This irrational behaviour – dollar dive and bond selloff – is more than just another bout of market jitters. There’s a palpable sense that we’re seeing something structural crack. No doubt King Dollar has endured plenty of stress in the past – twin deficits in the 1980s, the post-2008 money printing binge, even periodic government shutdowns – and always emerged with its dominance intact. Those episodes were painful but ultimately transient, hitting the dollar like a fever that eventually broke.
Today, however, seasoned observers sense a more chronic ailment. Mohamed El-Erian, for example, recently pointed out that unlike past moves, this year’s sharp dollar depreciation is “fueling worries about an erosion in international confidence in the US dollar and US assets as a whole”. In other words, this isn’t your garden-variety FX wobble – it’s a loss of faith. Confidence is the bedrock of any reserve currency, and if it erodes, no amount of interest-rate hikes or jawboning can easily shore it up.
The difference between a stressed King Dollar and a threatened one lies largely in trust. Trust that the US will keep its house in order and honour its debts; trust that it will steward the global financial system responsibly. That trust has been chipped away lately, and not just by market forces. Trump’s trade brinksmanship – lurching from tariff proclamations to partial retreats – has left international investors jittery about the policy direction of the US economy.
Even normally dry foreign-exchange bulletins are sounding the alarm. As one particular, very famous forex website reported, escalating trade tensions and tariff uncertainty have “reignited fears of a potential recession and undermined investor confidence in US assets” (fxstreet.com). In market-speak, that’s a very polite way of saying the rest of the world is losing trust in what the US is up to.
Another market dispatch noted that Trump’s rapid-fire tariff U-turns have “eroded investors’ faith in US policies and weakened confidence in the US economy,” sending the dollar sharply lower.
The bond market’s rebellion is especially telling. US Treasuries are the linchpin of King Dollar’s realm – the “risk-free” asset that underpins dollar supremacy. For decades, when fear spiked, money poured into Treasuries, allowing America to finance its deficits at low cost.
Not this time.
As tariffs flew and counter-tariffs from China piled up, instead of a rush into Treasuries we saw a rush out. One of the most startling sights was US yields rising faster than even Europe’s, despite mounting recession risks. It was as if investors said: we’d rather take our chances elsewhere, thank you very much.
Such a synchronised dump of US bonds by global players has little precedent in recent memory. It signals concern that America’s financial leadership – once rock-solid – has become unpredictable. If Washington is willing to weaponise trade, might it one day weaponise its debt or currency? Previously unthinkable questions are now whispered in trading floors.
So far, Trump’s trade tactics have clearly backfired in an ironic way. By trying to fortify American industry with tariff walls, he may be undermining the very currency that underpins America’s economic might. It’s a classic case of winning a battle and losing the war.
Washington’s credibility is another casualty of the tariff turbulence. Allies and adversaries alike see whiplash-inducing policy shifts and wonder if the US has become a capricious caretaker of the global financial order.
Every time Trump blurts out a new tariff or muses about renegotiating debt, the international community’s trust in US institutions frays a bit more. Once upon a time, the idea that the US might selectively default on its obligations or impose capital controls was absurd; now Trump has openly mused that some US debt might be “fraudulent,” a remark that investors abroad take as a warning sign.
It’s rightly said that reserve currencies often “collapse from within, victims of their own contradictions”. America’s contradictions are now on full display: preaching free markets while brandishing tariffs, urging other nations to trust its leadership while flirting with economic nationalism.
In the world of financial markets, nothing is smarter than smart money; watching for contradictions and hedging bets all the time. That explains why you can almost hear the clink of gold bars being stacked in vaults (indeed, gold prices hit record highs amid the chaos) and the shuffle of diversification – a bit more euro or yen here, a bit less dollar there.
When a US president suggests that the rules might suddenly change, smart money looks for exits. It’s a subtle shift, but potentially a momentous one – the erosion of the implicit contract that made the dollar dominant. That contract said: park your wealth in American dollars and Treasuries, and you’ll be safe, come what may. But if the safety is in doubt – be it from capricious policy or partisan brinkmanship – then King Dollar suddenly looks a lot less invincible.
So, is the greenback simply under stress, or facing a genuine threat? The honest answer: a bit of both, but leaning ominously toward the latter. In the immediate term, the dollar’s selloff could stabilise – markets overreact, and perhaps cooler heads (or an embattled Fed) will step in to shore up confidence. We’ve seen the dollar bounce back from slumps before. Yet there is a growing sense that this time the foundation is shakier. America’s political choices are catching up with its currency.
A reserve currency doesn’t stay on top by divine right or even by GDP size alone – it stays there because global players trust the issuer to be stable, sane, and sound. That trust isn’t shattered yet, but it’s certainly cracked. The situation now feels less like a routine stress test and more like a structural challenge to dollar dominance. The world is watching whether Washington will repair the cracks or keep chipping away at them.
King Dollar has reigned supreme for decades, but if the US continues to test the boundaries of that exorbitant privilege, it may discover that the rest of the world is no longer so willing to bow and obey.
As one commentator put it: every action has a reaction, and King Dollar will struggle to survive if America keeps shooting itself in the foot. In a twist laced with irony, Trump’s own policies have done what decades of external threats could not: put the dollar’s throne on shaky ground.
The king isn’t dead, not yet – but he’s looking a bit nervous, and rightly so.
Copyright Business Recorder, 2025
The writer can be reached at jafry.shahab@gmail.com
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