Concerns Over US Fiscal Path Erode Dollar's Safe-Haven Status

In the midst of a tense trade environment, the safe-haven allure of the US Dollar is fading. A recent survey conducted among 83 respondents from April 30th to May 6th revealed that over 55% of participants expressed concerns about the USD's safe-haven status, marking a significant increase from about one-third in the previous April survey. This shift in sentiment highlights growing apprehension about the longer-term fiscal path of the United States.

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Steve Englander, Global Head of G10 FX Research at Standard Chartered, expressed his worries, stating that the market is now more concerned about the longer-term fiscal path rather than the immediate stimulus. This change in perspective suggests that investors are looking beyond short-term gains and focusing on the sustainability of the US economy.

Erik Nelson, Macro Strategist at wells fargo Securities, echoed similar sentiments, predicting a more bearish outlook for the dollar in the second half of the year. He noted that the weak hard data in the United States, potential rate cuts by the Fed, and concerns about the Fed’s independence could further erode the USD's safe-haven status. These factors, combined with the exit from US assets, could lead to a re-emergence of concerns about the Fed’s independence.

Brian Rose, Senior US Economist at ubs Global Wealth Management, emphasized the importance of the Fed's independence in maintaining the USD's safe-haven status. He suggested that if there are worries about the Fed losing its independence, it could seriously undermine the USD's safe-haven status. In such a scenario, currencies like the yen or Swiss franc might benefit as backup safe havens.