{"id":32908,"date":"2025-07-01T05:47:35","date_gmt":"2025-07-01T05:47:35","guid":{"rendered":"https:\/\/financialrush.com\/?p=32908"},"modified":"2025-07-01T05:47:35","modified_gmt":"2025-07-01T05:47:35","slug":"the-fall-in-the-dollar-is-not-scary","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=32908","title":{"rendered":"The fall in the dollar is not scary"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=32e35eff-f164-413e-9cf6-644091291429\"><\/iframe><\/div>\n<div id=\"article-body\">\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<div class=\"n-content-layout__slot\">\n<p>This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=584573e552860d000491cdb8\" data-trackable=\"link\">here<\/a> to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium <a href=\"https:\/\/www.ft.com\/manage\/subscription\/change\/713f1e28-0bc5-8261-f1e6-eebab6f7600e?segmentId=5d1c2689-3304-f81f-a9e5-b3e96e93c176\" data-trackable=\"link\">here<\/a>, or <a href=\"https:\/\/www.ft.com\/newsletters\" data-trackable=\"link\">explore<\/a> all FT newsletters<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p>Good morning. The best headline we\u2019ve seen in a while was in the FT yesterday: \u201c<a href=\"https:\/\/www.ft.com\/content\/0f93c015-6e1f-4ef3-accc-8d060983284a\" data-trackable=\"link\">South Korea lifts 14-year ban on \u2018kimchi bonds\u2019 after dollar-backed stablecoins frenzy<\/a>\u201d. As we argued (yet <a href=\"https:\/\/www.ft.com\/content\/05727499-8bf6-4c56-8904-cc6292eb2469\" data-trackable=\"link\">again<\/a>) yesterday, there is nothing innocuous about stablecoins. Creating new kinds of money \u2014 even money backed by high-quality reserves \u2014 is financial fission. Best to do it carefully. Email us: <a href=\"https:\/\/mail.google.com\/mail\/?view=cm&amp;fs=1&amp;tf=1&amp;to=unhedged@ft.com\" data-trackable=\"link\">unhedged@ft.com<\/a>.<\/p>\n<h2 id=\"the-dollars-recent-decline-is-not-about-safe-haven-status\" class=\"n-content-heading-2 o3-editorial-typography-chapter\">The dollar\u2019s recent decline is not about \u2018safe haven\u2019 status<\/h2>\n<p>The dollar keeps getting weaker, and has now broken though the bottom of its 2022-2025 trading range:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A5bd0d064-9ff1-4c87-b7fa-45832e202810?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A5bd0d064-9ff1-4c87-b7fa-45832e202810?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A5bd0d064-9ff1-4c87-b7fa-45832e202810?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A5bd0d064-9ff1-4c87-b7fa-45832e202810?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A5bd0d064-9ff1-4c87-b7fa-45832e202810?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A95f56c88-b404-439a-86ec-e8fb7df7c0e0?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A95f56c88-b404-439a-86ec-e8fb7df7c0e0?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A95f56c88-b404-439a-86ec-e8fb7df7c0e0?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=3 3x\" width=\"1500\" height=\"2000\"\/><\/picture><\/figure>\n<p>Much of the punditocracy sees this as a symptom of fiscal and monetary mismanagement by the Trump administration, which is drawing the safe haven status of the dollar into question. This, for example, comes from a <a href=\"https:\/\/www.ft.com\/content\/59c07f63-3331-462b-b9e3-d1bcaea69fce\" data-trackable=\"link\">piece<\/a> in the FT yesterday (\u201cUS dollar suffers worst start to year since 1973\u201d):<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>\u201cThe dollar has become the whipping boy of Trump 2.0\u2019s erratic policies,\u201d said Francesco Pesole, an FX strategist at ING.\u00a0<\/p>\n<p>The president\u2019s stop-start tariff war, the US\u2019s vast borrowing needs and worries about the independence of the Federal Reserve had undermined the appeal of the dollar as a safe haven for investors, he added\u2009.\u2009.\u2009.\u2009<\/p>\n<\/blockquote>\n<p>And here\u2019s an example from an FT <a href=\"https:\/\/www.ft.com\/content\/0d73bb57-676e-4e73-93ec-03bdb22235de\" data-trackable=\"link\">piece<\/a> from Sunday (\u201cDonald Trump\u2019s fiscal policy and Fed attacks imperil US haven status, say economists\u201d):<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>\u201cFiscal deficits, deliberate government actions to shrink the US financial account and devalue the dollar, uncertainty about succession at the Fed and questions about Fed independence all negatively affect [the safe haven status of the dollar],\u201d said Anna Cieslak at Duke University.<\/p>\n<\/blockquote>\n<p>Unhedged doesn\u2019t buy it. Confidence in the dollar system had a bad shock in April, after the president\u2019s absurd Rose Garden performance on \u201cliberation day\u201d. But as an explanation of what is going on over the past month or so, the loss of safe haven status simply won\u2019t do. Look at what is happening at the same time:<\/p>\n<ul class=\"o3-editorial-typography-list-unordered\">\n<li>\n<p>2-, 10- and 30-year Treasury yields are falling\u00a0<\/p>\n<\/li>\n<li>\n<p>Inflation break-evens are falling<\/p>\n<\/li>\n<li>\n<p>Equities are hitting all-time highs<\/p>\n<\/li>\n<li>\n<p>Corporate bond spreads are back near all-time tightness<\/p>\n<\/li>\n<li>\n<p>Gold has been heading sideways (albeit at a high level) for two months\u00a0<\/p>\n<\/li>\n<li>\n<p>Implied volatility of equities and bonds is low\u00a0<\/p>\n<\/li>\n<\/ul>\n<p>None of this is consistent with global investors exiting US dollar assets, a witless lackey being appointed Fed chair, a horrific failure of tariff negotiations, or a spiralling deficit\/rates crisis. One might perfectly well argue that the market is wrong about all these things. Markets do go through periods of being mostly wrong. But the market simply is not saying the safe haven status of dollar assets is under increasing stress.<\/p>\n<p>Indeed, the opposite is closer to the truth: since the April scare, the policy outlook has become steadily less frightening. That, plus signs of a gently weakening economy, has raised expectations for Fed rate cuts and allowed long-bond yields to fall, as well. In that context, a falling dollar is normal.<\/p>\n<h2 id=\"the-budget\" class=\"n-content-heading-2 o3-editorial-typography-chapter\">The budget<\/h2>\n<p>The Senate votes on the \u201cbig, beautiful bill\u201d this week. The proposed law represents all of Trump\u2019s signature spending proposals rolled into one. It contains measures ranging from child tax credits to border security, and even tucks in a long-awaited increase to the debt ceiling.\u00a0<\/p>\n<p>For investors, the specifics of the budget bill matter insofar as they affect specific industries. But, more important is the sheer amount of spending: how much it adds to the deficit relative to the market\u2019s previous expectations.<\/p>\n<p>The most expensive part of the bill is the extension of Trump\u2019s 2017 tax cuts, which make up about 90 per cent of the total tax cuts in the bill, according to Shai Akabas at the Bipartisan Policy Center. But the extension of those cuts was already expected by the market \u2014 all <a href=\"https:\/\/www.nytimes.com\/2025\/06\/29\/us\/politics\/senate-republicans-tax-cut.html\" data-trackable=\"link\">budget trickery<\/a> aside. What is surprising is the additional tax cuts and spending that were layered on top. A few worth calling out include eliminating taxes on overtime ($90bn addition to the deficit over 10 years, according to the Congressional Budget Office\u2019s most recent estimate), tips ($32bn), and car loans ($31bn), as well as new spending on defence ($149bn) and border security ($129bn).<\/p>\n<p>Below is a chart showing the CBO\u2019s baseline forecast of the total deficit from January 2025, that is, the deficit forecast if the laws on the books remain generally unchanged; the CBO\u2019s deficit forecast after the House bill passed; and its most recent deficit forecast, based on the contents of the Senate bill:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ab31dbdb4-52fd-4808-8d41-7fdb2c27bddd?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ab31dbdb4-52fd-4808-8d41-7fdb2c27bddd?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ab31dbdb4-52fd-4808-8d41-7fdb2c27bddd?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ab31dbdb4-52fd-4808-8d41-7fdb2c27bddd?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ab31dbdb4-52fd-4808-8d41-7fdb2c27bddd?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adeb7732c-d9f5-45f0-b4d0-0ab62cc24cf1?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adeb7732c-d9f5-45f0-b4d0-0ab62cc24cf1?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adeb7732c-d9f5-45f0-b4d0-0ab62cc24cf1?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F1a5b9de0-55ec-11f0-b496-07e2cd045bc5-standard.png?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1\" alt=\"Line chart of Estimated US primary deficit ($bn) showing Getting pricier\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>Notice that the deficit expands faster in the first few years of the bill. That is by design. A lot of the new tax provisions \u2014 no tax on tips, no tax on overtime \u2014 are set to be spent between now and the end of the Trump administration. \u201cThe fiscally stimulative part is going to be spent in 3.5 years, not 10 years, like previous bills\u201d, said Ed Mills at Raymond James. For equities, this is probably a good thing in the near term. A bigger <a href=\"https:\/\/www.ft.com\/content\/4b91918f-a8e0-4b02-a732-f98cd9689997\" data-trackable=\"link\">fiscal impulse<\/a> pushes money into the system, and that money tends to wind up on corporate balance sheets and in investors\u2019 brokerage accounts.\u00a0<\/p>\n<p>But widening the deficit will push up interest costs. \u201cIn [the bill\u2019s] current form, the US\u2019s interest expenses will go up to 25 per cent [of total revenue] from 22 per cent. That means 1 in every 4 dollars the US takes in will go to paying off the national debt,\u201d said Akabas at the Bipartisan Policy Center.<\/p>\n<p>At some point, higher deficits and debt-maintenance costs cease to be sustainable. Interests rates begin to spiral upwards. The country is forced into austerity, financial repression, or high inflation. Bonds will be crushed and equities will not be spared, either. We do not know whether this is that point. But we know this bill will bring us closer to it.<\/p>\n<p>(<em>Reiter<\/em>)<\/p>\n<h2 id=\"one-good-read\" class=\"n-content-heading-2 o3-editorial-typography-chapter\">One good read<\/h2>\n<p><a href=\"https:\/\/www.ft.com\/content\/5cb5ebf9-bfb3-4a50-bc2f-79540baf8f87\" data-trackable=\"link\">Spy Kids.<\/a><\/p>\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<h3 id=\"ft-unhedged-podcast\" class=\"n-content-heading-3 o3-editorial-typography-subheading\">FT Unhedged podcast<\/h3>\n<div class=\"n-content-layout__slot\">\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Adfee3b6d-9e31-411d-9bdf-ba4b484346d9?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=5 5x\" width=\"4001\" height=\"2251\"\/><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Fdfee3b6d-9e31-411d-9bdf-ba4b484346d9.jpg?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1\" alt=\"\" data-image-type=\"image\" width=\"4001\" height=\"2251\" loading=\"lazy\"\/><\/picture><\/figure>\n<\/div>\n<div class=\"n-content-layout__slot\">\n<p>Can\u2019t get enough of Unhedged? Listen to <a href=\"http:\/\/unhedged.ft.com\/\" data-trackable=\"link\">our new podcast<\/a>, for a\u00a015-minute dive into the latest markets\u00a0news and financial\u00a0headlines, twice a week.\u00a0Catch up on past editions of the newsletter\u00a0<a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=584573e552860d000491cdb8\" data-trackable=\"link\">here<\/a>.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<h3 id=\"recommended-newsletters-for-you\" class=\"n-content-heading-3 o3-editorial-typography-subheading\">Recommended newsletters for you<\/h3>\n<div class=\"n-content-layout__slot\">\n<p><strong>Due Diligence<\/strong> \u2014 Top stories from the world of corporate finance. Sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=58db721900eb6f0004d56a23\" data-trackable=\"link\">here<\/a><\/p>\n<p><strong>The Lex Newsletter<\/strong> \u2014 Lex, our investment column, breaks down the week\u2019s key themes, with analysis by award-winning writers. Sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=56657d10e4b04e04251004fd\" data-trackable=\"link\">here<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/32e35eff-f164-413e-9cf6-644091291429\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this&hellip;\n","protected":false},"author":5,"featured_media":32909,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-32908","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/32908","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=32908"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/32908\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/32909"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=32908"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=32908"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=32908"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}