Dollar has lost some of its safe-haven status, ING report says

• ING measured the decline in safe-haven status by calculating the three-month correlation between the dollar index and U.S. stocks and 10-year Treasuries compared to 2024
• Private investors, who hold over 80% of foreign holdings of U.S. assets, remain invested, and there are no signs of accelerated de-dollarisation in global transactions
• ING warns that if the Fed were seen cutting rates inappropriately, 'a run on the dollar' could follow, and forecasts the euro at $1.22 by year-end versus current levels around $1.18

Summary

Key Development: The U.S. dollar has lost a portion of its traditional safe-haven status since 2024, though global demand for the currency remains stable, according to a new ING report.

Performance Data: The dollar index declined nearly 10% in the previous year, marking its worst annual performance since 2017. This weakness has been attributed to erratic U.S. trade policy, President Trump's tariff threats against allies, and his criticism of the Federal Reserve.

Main Findings:

• The dollar's diminished safe-haven appeal was measured through three-month correlations between the dollar index, U.S. stocks, and 10-year Treasuries
• Private investors, holding over 80% of foreign U.S. assets, remain committed
• Dollar weakness appears more cyclical than structural at this stage
• No signs of accelerated de-dollarization in global assets, liabilities, or transactions

Market Outlook: ING forecasts the dollar's decline this year will be less severe than last year's drop. The bank projects the euro to reach $1.22 by year-end, compared to current levels around $1.18.

Key Risk: ING emphasized that Federal Reserve independence is "the cornerstone of global financial stability." If the central bank is perceived as cutting rates inappropriately due to political pressure, it could trigger "a run on the dollar."

Implications: While the dollar's safe-haven premium has eroded, fundamental demand remains intact. However, continued political interference with Fed policy poses a significant downside risk to the currency's stability and global reserve status.