Is the U.S. Dollar Losing Its Safe-Haven Status in 2026?

Source: Kapitales Research

Highlights:

• The U.S. dollar is under pressure in early 2026, with the Dollar Index heading for its sharpest three-day fall since April last year, at the time of writing.
• Policy uncertainty, trade tensions, and expectations of U.S. interest rate cuts are weakening investor confidence in the greenback.
• Rising demand for alternative safe havens such as gold signals a broader shift in global investor sentiment away from the dollar.

Early-Year Turbulence Shakes Confidence

The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, has come under renewed pressure in the opening weeks of 2026, forcing investors to reassess earlier expectations of stability. At the time of writing, the dollar was on track for its steepest three-day decline since April last year, when aggressive trade measures triggered a sharp sell-off in U.S. assets. The renewed weakness signals growing unease around U.S. policy direction and global risk sentiment.

Policy Uncertainty Weighs on the Greenback

In his first year back in office, President Donald Trump’s unpredictable stance on trade, foreign relations, and monetary policy has unsettled markets. Ongoing attacks on the Federal Reserve have sparked doubts about its ability to operate independently, while a surge in government spending has intensified concerns over the country’s fiscal outlook. As a result, the dollar fell more than 9% over the past year—its weakest annual performance since 2017—and has continued to lag peers such as the euro, British pound, and Swiss franc so far in 2026.

Markets Search for Stability Elsewhere

Analysts say multiple forces are converging faster than expected. Persistent market volatility, fragile bond sentiment, and a sell-off in Japanese government debt have increased fears of spillover into U.S. Treasuries. At the same time, gold prices hitting fresh records suggest investors are actively seeking alternative safe havens. Political tensions, the risk of a U.S. government shutdown, and strained relations with key allies have further clouded the outlook.

Interest Rate Expectations Add Pressure

Monetary policy is also playing a role. The Federal Reserve is still expected to cut interest rates at least twice this year, while other major central banks are holding steady or considering hikes. This divergence reduces the dollar’s appeal, encouraging capital to flow toward currencies with improving yield prospects.

What Comes Next for the Dollar?

With leadership changes at the Federal Reserve looming and policy uncertainty remaining high, the dollar’s near-term path looks fragile. For investors, 2026 may mark a turning point in how the world’s most traded currency is viewed.

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