The U.S. Dollar, the world's reserve currencyand the ultimate safe-haven asset, is now the world's worst-performing majorcurrency in 2025. Octa Broker explains why.

The historical role of the U.S. dollar as theworld's leading safe-haven currency is under threat. Despite risingmacroeconomic uncertainty, investors are fleeing the U.S. dollar, defyingconventional safe-haven flows. Greenback's rapid depreciation over the pastweeks has fuelled speculation over the loss of confidence in its safe-havenstatus. With USDCHF trading news multi-year low, Octa Broker analyzes if we arein the midst of dramatic regime change in markets and explains why the U.S.dollar is struggling amid global trade turmoil

Introduction

The U.S. dollar (USD), the buck or the greenback,as it is often informally referred to, has long occupied a rather exclusiveposition in global finance. Ever since the end of World War II and theestablishment of the Bretton Woods monetary system, the greenback has played acrucial role in facilitating cross-border transactions and smoothinginternational trade flows, in addition to serving as a primary reserve currencyfor central banks around the world. Being the official currency of the world'slargest economy, the United States, has certainly helped the dollar maintainits dominant position. Indeed, the sheer size of the U.S. economy, its deep andliquid financial markets, strong private property rights and the rule of lawenshrined in the U.S. Constitution, and last but not least, the unrivalledpower of the U.S. military, made the dollar the most trusted global currency.

As a result, the greenback became what market participants call ‘a safe-havencurrency’, a refuge for investors during times of macroeconomic uncertainty ormarket turmoil. Most recently, however, the instability in global financialmarkets triggered by rising trade tariffs and exacerbated by fears of a globalrecession seems to have upended this narrative, undermining the dollar's establishedrole.

Tradetensions

The U.S.dollar has been depreciating almost relentlessly since mid-January. In justthree and a half months, the Dollar Index (DXY), which measures the value ofthe greenback relative to a basket of six major foreign currencies, includingthe euro, Japanese yen, British pound, Canadian dollar, Swedish krona, andSwiss franc, lost more than 10% in value (from 13 January high to 21 Aprillow). On 11 April, it breached the critical 100.00 level, and although it hassince increased slightly, it remains by far the worst-performing currency amongother major currencies this year so far. This decline has raised an importantquestion: Is the U.S. dollar losing its safe-haven status, or is it merely atemporary setback?

Thecatalyst for the dollar's slide is rooted in the escalating trade tensions,particularly the aggressive tariff policies enacted by U.S. President DonaldTrump. In recent weeks, the U.S. imposed a 10% baseline tariff on all imports,with much steeper duties imposed on key trading partners like China, which, inturn, retaliated with its own 125% levies on U.S. goods. These moves havestoked fears of a global recession, as international supply chains may getdisrupted with potentially devastating consequences for the world economy.Historically, such uncertainty would bolster the dollar, as investors seek thesafety of U.S. assets. However, this time around, the greenback is faltering,while alternative safe-haven currencies like the Swiss franc (CHF) and Japaneseyen (JPY) are gaining ground.

Hedging

Kar YongAng, a financial market analyst at Octa Broker, says that the U.S. dollar'srecent weakness is driven by a diversification shift among investors intoalternative safe-haven currencies, motivated by risk-hedging and fears over thegrowth prospects of the U.S. economy.

'Weare witnessing a major reallocation of capital. Market participants realisethat in a trade war, there are no winners. In the short term, the U.S. economywill face the consequences, and they will not be pretty. Big players with largeinvestments in the U.S. realised they needed to hedge their currency risk, sothey moved into the Swiss franc and the Japanese yen. Also, higher tariffs arefuelling recession fears, so traders have increased their bets on additionalrate cuts by the Fed [Federal Reserve].That too had a bearish effect on the greenback'.

Indeed, onApril 21, USDCHF dropped below the 0.80500 mark, the level unseen in almost 14years, while USDJPY was hovering near the critical 140.00 area, a drop belowwhich will open the way towards new multi-year lows. Significant shifts incapital flow allocations have prompted some analysts to conclude that the U.S.dollar is facing a crisis of confidence. However, Octa analysts have adifferent view and believe that the current situation doesn't reflect a broaderosion of investors' long-term trust in the U.S. dollar.

Kar Yong Ang said: 'The issue isn't so much a fundamental lossof faith in the U.S. dollar's long-term prospects. What we are witnessing rightnow is a dramatic, yet logical response to the probable economic implicationsof Donald Trump's trade policies. You have an administration, which iseffectively re-structuring the global trade order, that does not conceal itsdissatisfaction with the Fed and apparently believes in a weak dollar. Ifyou're a foreign investor in the U.S., you simply cannot afford to be unhedgedthese days. But also, let's not forget that the greenback has been falling fromrelatively high levels, so a healthy downward correction was long overdue'.

In other words, the recent slide in the U.S. dollar is not an unusualphenomenon or an anomaly; it is quite natural and probably a short-termoccurrence. In fact, even after an 11% drop in 2025, the greenback is stillsome 38% above its historical low set in 2008. Furthermore, it is clear thatonce key global actors adopt more conciliatory diplomatic rhetoric and engagein active trade negotiations, the situation will normalise immediately.

Conclusion

As for thedollar's long-term prospects, its dominant status will likely continue to bechallenged, but no single currency can take its crown for now. According to the Bank of InternationalSettlements (BIS), the U.S. dollar still accounts for nearly 88% ofinternational transactions, and its dominance in Forex markets remainsunmatched, with daily trading volumes dwarfing those of the yen or franc.According to the International Monetary Fund (IMF), more than half (57.8%) ofthe $12.4 trillion in global foreign exchange reserves were in U.S. dollars.Therefore, while the greenback may not be the automatic refuge it once was, itsrole as a Forex cornerstone endures for now.

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