As President Trump’s tariffs rock the world, German bonds and the euro are benefiting. But U.S. strength endures, our columnist says.
Reports of the dollar’s demise are greatly exaggerated.
It’s true that the greenback has lost some value this year, and that the Trump tariff shock has a lot to do with it.
And I can’t deny that when you measure the dollar using common comparisons, it has fallen sharply: almost 9 percent this year against the euro. The U.S. Dollar Index, a widely followed metric that compares the dollar with six currencies, has fallen almost 8 percent.
The swelling U.S. budget deficit has made many investors wary of U.S. government bonds. What’s more, the tariffs and the president’s disregard for the traditions of international diplomacy have damaged the status of the dollar and the U.S. Treasury bond as linchpins of the world financial system. The euro, German bonds and gold have benefited from the dollar’s problems, accelerating trends underway for years. None of this is positive for the dollar.
Yet from other angles, the dollar looks stronger. It’s held its own against many currencies and remains highly valued, even after its recent decline. Most important, perhaps, is that there is no single replacement currency in sight. Like it or not, the dollar and the U.S. Treasury bond are essential in world commerce and finance. They remain essential for investors, too.
Hedging your bets by holding assets around the world makes a great deal of sense. The euro, in particular, may well play a more important role in the future than it has over the last 20 years.
But don’t go too far with this. It’s too early to give up on the dollar or U.S. Treasuries.
Some Perspective
This is a volatile year. After President Trump announced that he was raising U.S. tariffs to their highest levels in more than a century, many countries questioned whether the United States could still be trusted. Canada on Monday elected a prime minister, Mark Carney, on the promise that he will never accede to the aggressive aims of Canada’s erstwhile ally. “President Trump is trying to break us so America can own us,” Mr. Carney said. “That will never, ever happen. But we also must recognize the reality that our world has fundamentally changed.”