The US Dollar Index recently dropped below 99, marking its lowest point since April 2022. This represents a decline of over 10% from its January level of 110. Analysts from CICC Foreign Exchange Research attribute this weakness to the uncertainties in US government policies, which have diminished the dollar's traditional role as a safe-haven asset. Concerns over the Federal Reserve's independence, fueled by recent comments from former President Trump, have further exacerbated market apprehensions.
Shenwan Hongyuan Securities' macro team noted that the dollar's decline was primarily driven by increasing recession expectations in the US. Since January, the US economy has shown signs of weakening, with the Citigroup Economic Surprise Index falling from 14.5 to -19.5. This has led to a rise in interest rate cut expectations, causing a significant drop in the 10-year US Treasury yield by 62 basis points.
Despite a rebound in US Treasury yields since early April, the dollar continues to weaken, suggesting a shift in investor sentiment from "flight to safety" to "flight to non-US" assets. Historically, the dollar tends to strengthen during recessions, but current concerns over US debt sustainability and isolationist policies may weaken its safe-haven appeal, pushing funds toward the euro and other assets.
