The dollar has perked up recently as news around trade deals stoked optimism as a sign of things to come in the next 100 days of the Trump administration. But diversification away from the greenback is likely to persist, as concerns about the U.S. ability to pay its debt-or its counterparty risk-aren’t likely to disappear easily, Macquarie analysts said in a recent note.
“A good portion of the weakening that the USD saw in March and April is structurally bound up with perceptions of the US as a ’counter-party’ risk, Those won’t be shaken easily, despite US ’engagement,’” Macquarie said in a recent note.
The US Dollar Index was down nearly 10% since the start of Trump’s second term-the steepest drop for a new administration in decades.
This reflects skepticism about U.S. assets, driven by aggressive trade policy, political uncertainty, and concerns about America’s long-term fiscal trajectory.
While the next hundred days of the Trump administration are expected to be “marked by ’concessions and negotiations’ between the US and its allies and trading partners, negative structural changes will likely limit upside.”
“The weakening of the USD from February to April won’t be fully reversed, barring a significant political turn in the US, and even if the US walks back all the tariffs,” Macquarie said.
Over the longer term, the sun could be beginning to set on the dollar as the bona fide safe-haven currency, as the impact of the Trump administration’s actions has dented the integrity of some US institutions and systems, including the system of checks and balances. This highlights the need to diversify counterparty risk away from the US.
“The USD will become less an essential currency, and more an alternative among a few comparable choices, including the EUR,” Macquarie said.
“That is the risk that the USD faces going forward, and once we get past the current period of technical “congestion,” it added.
