U.S. dollar's confidence crisis deepens as capital shifts east

Growing skepticism over the U.S. dollar's dominance has intensified as investors redirect capital toward European and Asian markets, according to financial experts and policymakers.

Analysts attribute the dollar's decline to weakening confidence in U.S. economic policies, rising geopolitical tensions, and a broader reassessment of America's role in stabilizing the global financial system.

The U.S. Dollar Index has fallen steadily in recent weeks, a trend exacerbated by downward revisions to U.S. growth forecasts and heightened recession risks. Industry leaders argue that structural shifts in investor behavior – driven by Washington's policy decisions – are accelerating the currency's retreat.

"Normally, when you see big tariff increases, I would have expected the dollar to go up. The fact is the dollar is going down," said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, adding that this paradox underscores a shift in investor preference.

Francois Villeroy de Galhau, governor of the Bank of France, echoed concerns over U.S. strategy. American policies have been aimed to reinforce the dollar's supremacy for decades, he said. Yet recent actions, particularly under the Trump administration, have undermined that goal.

Confidence in the dollar is eroding not because of economic cycles, but because of self-inflicted wounds to its credibility, he added.

"This is not business as usual," said Krishna Guha, vice chairman of Evercore ISI. "When you see yields up, dollar down, there's really only one takeaway, which is you are seeing capital flows out of the U.S. into other markets."

He said this reflects two things. One is the evaporating U.S. growth exceptionalism. The other is the "reduced relative attractiveness" of risk-free dollar assets, in a world where the U.S. is "undermining the international economic and security order that the U.S. itself created."

Deutsche Bank analysts warned this week that prolonged trade disputes and sanctions have inflicted lasting damage on the dollar's appeal, fueling a global de-dollarization trend.

Meanwhile, TD Securities highlighted that fading U.S. growth advantages are driving investors toward European equities and emerging Asian markets, where fiscal stability and growth prospects appear more favorable.