Falling Dollar Opens Door for Euro as Reserve Challenger

There is uncertainty around the world's reserve currency, which makes room for substitutes like the euro. It won't be simple, though.

An indicator that measures the U.S. dollar's performance versus a basket of significant trading partners shows that it has dropped around 9% over the last three months. The currency hasn't done so poorly in a president's first 100 days since the 1970s.

The decline is not unexpected. President Trump's tariffs have created the conditions for slower growth and greater inflation, making the prognosis for the US economy much bleaker than it was on Inauguration Day. The value of U.S. assets has significantly decreased. The dollar's position as the most significant currency in the world for almost 70 years is being questioned, as is whether it will soon lose that position.

Investors are reconsidering the extent to which they wish to increase their exposure to U.S. assets in light of Trump's policies and his challenges to established conventions, such as the central bank's political independence. It appears that doubt will persist. Jens Nordvig, a researcher at the firm Exante Data stated that something is in motion and it mostly will be irreversible.

There are clear warnings. The dollar still has priority even if it is now weaker. There aren't many places to go, so a quick departure from the US still seems unlikely.