Dollar’s global haven allure fading amid worries over economy

The dollar is now at the weakest level in three years amid worries over US tariffs and the outlook for the US economy.The Bloomberg Dollar Spot Index slid as much as 0.8% last Thursday to the lowest level since April 2022. The euro jumped to the strongest since 2021, while the British pound tapped a new three-year high.All currencies in the Group of 10 gained against the greenback.The dollar is down almost 10% against a basket of major currencies this year, leaving other countries grappling with unanticipated FX moves that are having a knock-on impact on economic growth and inflation.The latest declines come on the heels of data on Thursday that showed US producer price inflation remained muted in May, held down by tame goods and services costs, which together with other data pushed traders to bet on more interest-rate cuts by the Federal Reserve.The Fed is set to hold its next policy meeting on Wednesday."Trump renewed tariff threats are sparking concerns over US economy, which trickles down to increased bets of Fed easing,” according Helen Given, a foreign-exchange trader at Monex Inc.The concern remains that the US could experience a spike in inflation and start sliding toward a recession amid US President Donald Trump’s sweeping tariffs on imports.The dollar’s muted rally against major peers after Israel’s strikes on Iran reinforced the impression that the greenback’s role as a global haven currency is fading.A Bloomberg gauge of the US dollar gained as much as 0.6% at one point on Friday after Israel’s attacks on Iran stoked fears of a wider conflict in the Middle East.However, the currency pared much of its advance and closed some 0.2% higher in New York. The modest recovery left the greenback just above the three-year low it hit last week.To be sure, last Friday’s trading pattern was a far cry from decades past, when international crises would typically fuel gains in the greenback and Treasuries, long considered havens in part because of their liquidity and confidence in the US as a leader in the global economy.The dollar has slid during the past five months as Trump pushed ahead with tariffs, which have raised concerns over the US economic outlook and fuelled speculation that foreigners will shun American assets — the so-called "Sell America trade.”There are, however, some signs that the gloomy stance toward the dollar is easing a bit.For example, options traders — while still broadly bearish on the US currency’s prospects — have moderated their negative views in recent weeks and are banking on a pause in the greenback’s sharp decline.The US’s position as the world’s largest oil producer likely helped buoy the dollar on Friday as crude futures soared, analysts said. So did the possibility of a squeeze in short positions against the greenback.The Bloomberg Dollar Spot Index has dropped about 8% this year as Trump’s efforts to overhaul global trade chipped away at investor confidence in the US economy.Despite warnings about long-term headwinds for the dollar, here’s the undeniable reality: Dollar is the king, still.The US currency is on one side of almost 90% of foreign-exchange transactions and accounts for two-thirds of international debt. To be clear, no one would betting that the dollar’s decline will be a straight line as Trump’s tariffs policy continues heighten tensions across the world and the threat of a US recession and geopolitical risks foster demand for havens.It also remains solidly entrenched as the world’s key currency, used for the majority of central bank reserves and for the purchase of commodities like oil, in large part because no significant alternative has emerged.