Dollar: Safe-Haven Status Faces Bond Market Pressure — Rabobank

The dollar's status as the world's traditional safe-haven asset is facing severe pressure from the bond market. Jane Foley, Senior FX Strategist at Rabobank, noted that persistently rising global bond yields, coupled with growing market concerns over US fiscal discipline, are challenging the safe-haven status long enjoyed by US Treasuries and the dollar. The dollar index is currently trading near 99.661, having recorded a significant decline so far this year.

**Fiscal and Trade Policies Undermine Confidence Foundations**

Market anxiety over the US fiscal path is a core driver. According to reports, the proposed tax legislation is expected to add trillions of dollars to the federal deficit over the next decade, directly shaking investor confidence in US Treasuries as risk-free assets. Meanwhile, US efforts to reshape global trade are also eroding confidence in its economic growth outlook. Rodrigo Catril, Strategist at National Australia Bank, observed that a key theme is whether the dollar's safe-haven attributes are being diluted by the US government's trade policies, fiscal profligacy, and challenges to the rule of law.

**Geopolitical Role Shift Amplifies Concerns**

The shift in the US geopolitical role has further amplified these concerns. Analysts suggest that the US appears to be retreating from a dominant geopolitical role, opening the door for other countries to pursue their own agendas. This shift has been particularly evident in recent geopolitical tensions, where US Treasuries—traditionally attracting safe-haven flows—have seen little demand this time, with funds instead flowing into hard assets such as energy and gold. Shoki Omori, Chief Strategist at Mizuho Securities in Tokyo, also noted that clients are increasingly asking about and discussing the dollar's safe-haven role in portfolios, warning that if the US government signals future intervention in conflicts, Treasuries and the dollar could face further selling pressure.

**Alternative Safe-Haven Assets Gain Favor**

As investor confidence in the dollar wavers, funds are beginning to shift toward other traditional safe-haven currencies. The Swiss franc and the Japanese yen are gaining more attention, indicating that the market is reassessing the global safe-haven landscape. Some analysts point out that this cross-asset reaction suggests cracks in confidence in sovereign debt as a risk-free haven, with the monetary and geopolitical architecture of the past four decades gradually unraveling.