13-06-2025
King Dollar's Crown Wobbles. Brace for Fallout.
The dollar is supposed to be the natural haven in times of global stress, yet the lack of flows into US assets after Israel's airstrikes on Iran is telling. The dollar index hit a three-year low Thursday before the military strikes, but that it's rebounded only about 0.5% subsequently suggests the 10% loss of relative value this year of the greenback to other major currencies may persist. Gold and oil both rose sharply so it's not that geopolitical risk doesn't matter. A weaker dollar has consequences globally, especially if that is being undermined by a lack of confidence.
What is different about the weaker dollar this year is that it's not being driven, as is more normal, by interest-rate expectations. Nor is it being repriced by a sudden glaring relative growth differentials. Although the noise around tariffs can seem deafening, what is most impairing the dollar is its burgeoning budget deficit and more volatile political backdrop. Large government borrowing typically leads to a weaker US currency as inflation pressures pick up.
