Global confidence in the USD wanes as trade wars continue

USD dominance under pressure? Fund managers are warning policy volatility and trade barriers are threatening the USD’s status as a safe haven for global capital, the Financial Times reports. The greenback fell to a three-year low against the EUR on Friday, following US President Donald Trump’s erratic policymaking and reciprocal tariff decisions.

The slump is somewhat surprising, as the greenback typically strengthens during global financial stress, with investors seeking refuge in US treasury bonds.

The reasons? The weaker USD — alongside the rise in bond yields — may point to a “capital flight,” Fidelity International Senior Portfolio Manager Mike Riddell told the FT. “This suggests foreigners have been and are continuing to sell US stocks and sending their money elsewhere,” Axios reports, citing Howard Ward and John Belton, co-chief investment officers of value at Gabelli Funds.

The trend may also have to do with the US president floating the rule of law and threatening the Federal Reserve, Edward Fishman, a former top sanctions official at the US State Department, told the FT. He speculated that this could lead, over time, to the emergence of a “multi-polar” currency system where the EUR played a bigger role.

Selling America: With nearly USD 2 tn in annual foreign capital inflows, the US saw its share of global capital flows rise to 41% in 2024 — nearly double the pre-pandemic levels — Axios reports, citing gov’t data. However, the tariff-triggered sell-off of assets, including equities, bonds and the USD — a trend which ING interest rate strategists called “ sell America Inc. ” — may threaten redirecting these inflows elsewhere.

The drop led fund managers to doubt the USD’s market dominance and role as a global capital haven, raising concerns about the greenback serving as a reserve currency during market volatility. “There is [now] a very good case for the end of [USD] exceptionalism,” JPMorgan Asset Management Global Head of Fixed Income Bob Michele told the salmon-colored paper.

BUT- A weaker USD can be a boon for the US, some economists argue. “The reserve function of the [USD] has caused persistent currency distortions and contributed to … unsustainable trade deficits,” weighing down US competitiveness and manufacturing, said Stephen Miran, Chairman of the White House Council of Economic Advisers (watch, runtime: 1:04:00).

The recent tariffs are meant to correct these dated trade trends, Miran said, adding that a weaker greenback may redistribute the “burden of peace and security” while returning dynamism to the US economy.

THE CLOSING BELL-

The DFM fell 0.2% on Friday on turnover of AED 489.7 mn. The index is down 3.7% YTD.

In the green: Emirates Investment Bank (+14.2%), Al Ramz Corporation Investment and Development (+13.8%) and National General Insurance Company (+12.9%).

In the red: Al Salam Sudan (-7.7%), National International Holding Company (-5.5%) and Commercial Bank of Dubai (-4.8%).

Over on the ADX, the index rose 0.4% on turnover of AED 942 mn. Meanwhile, Nasdaq Dubai was up 0.5%.

CORPORATE ACTIONS-

Abu Dhabi-based BHM Capital and publicly listed property developer RAK Properties have mutually agreed not to renew their expired liquidity provision agreement for RAK’s shares traded on the Abu Dhabi Securities Exchange (ADX), according to a DFM disclosure (pdf).

In context: RAK Properties tapped Arqaam Securities as its liquidity provider last week for shares traded on the ADX. The agreement aims to reduce bid-ask spreads, improve price discovery for shares, and increase market participation from institutional and retail investors.

Salik’s general assembly approved distributing AED 619.8 mn in dividends for 2H 2024, equivalent to 8.3 fils per share, according to a disclosure (pdf).

Shuaa Capital has activated its previously approved capital increase, raising its share capital by 44.3% from AED 2.5 bn to AED 3.7 bn, according to a DFM disclosure (pdf). Trading on the new shares begins today, with the company confirming it has fulfilled all regulatory and procedural requirements. The capital increase comes following the issuance of AED 359.5 mn in bonds it issued to investors and noteholders over two tranches last month.