The U.S. dollar faces its most severe decline since 2023, and its safe-haven status may be impacted.

After US President Trump announced tariffs on Mexico and Canada, the US dollar experienced the most severe two-day decline since 2023, with market trends completely opposite to expectations. What is more concerning is that the US dollar's status as a global safe haven asset may be gradually weakening. The US has always enjoyed a unique "currency privilege", with a large amount of global trade settled in dollars, maintaining strong demand in any economic environment, even as the federal government accumulates massive debt. However, Trump's tariff policy and the rift with Europe in military affairs may pose a threat to the US dollar's status. The market's reaction to the tariffs is the first warning sign of the US dollar's volatility. Initially, many believed that the tariffs were just a negotiating strategy by Trump. However, as the tariff policy was actually implemented, market sentiment changed dramatically. In theory, the tariff policy should benefit the US dollar by depreciating other currencies to maintain global trade balance. However, the reality is different. Before the tariffs were officially implemented, the US dollar did strengthen. The ICE Dollar Index rose 10% from its low of 100.18 on September 30 last year to a peak of 110.18 on January 13. However, since then, the index has fallen by 3.6% to 106.24, with a 0.9% drop on Tuesday alone. Over the past two days, the dollar index has fallen by 1.7%, marking its worst performance since December 2023. The decline of the US dollar is also accompanied by dramatic volatility in the US stock market. The S&P 500 Index and the Dow Jones Industrial Average both fell by over 1%. At the same time, the yield on the US 10-year Treasury bond also dropped to 4.14%. These trends are completely contrary to market expectations. Gavekal analyst Tan Xian pointed out that economists had predicted the dollar to appreciate and other currencies to depreciate to offset the impact of tariffs and maintain global trade balance. However, the dollar's movements are influenced by more than just tariffs. US government fiscal tightening could lead to economic growth slowing down, lower yields on government bonds, and retaliatory measures from trade partners, all putting pressure on the dollar to further depreciate. "The theoretical logic is good, but market trends show that reality often does not unfold as perfectly as theories predict." Compared to economic growth, rates, and trade factors, concerns about the US dollar's safe haven status have a more impactful influence on the market. George Saravelos, Global Head of FX Research at Deutsche Bank, pointed out in a report to clients on Tuesday that the dollar may be losing its traditional safe haven properties. Typically, the dollar strengthens when markets are volatile. However, this time is different - both risk and non-risk currencies are showing an appreciation trend against the dollar. Saravelos stated, "We will not make such a judgment lightly, but the speed and scale of changes in the global market compel us to consider this possibility." However, Saravelos has not yet adjusted his neutral stance on the dollar. He believes that Trump may still adjust tariff and fiscal policies, the Fed may remain neutral in the face of economic downturn, and other central banks may cut rates due to tariff impacts, all of which could affect the future trend of the dollar. "We still maintain a neutral view on the dollar for now, but we are more open to the dual risks of the dollar." In addition to economic and trade factors, Trump's foreign policy also poses a potential threat to the international status of the dollar. Sander Tordoir, Chief Economist at the European Reform Center, pointed out that the countries most reliant on US defense (such as South Korea, Japan, and Germany) hold the most dollar reserves. He stated, "The US weakening relationships with allies will have a negative impact on the dollar."