The US dollar has lost part of its traditional safe haven appeal over the past year, according to a new analysis from ING, though the bank does not see evidence of a broad or structural decline in global demand for the currency. The shift comes after a turbulent period marked by volatile trade policy, political pressure on the Federal Reserve, and shifting investor sentiment across global markets.
The dollar index fell nearly 10 percent in 2025, marking its weakest annual performance since 2017. Analysts attribute much of that decline to erratic trade measures and tariff threats introduced by President Donald Trump, along with public criticism of the Federal Reserve. These developments raised concerns about policy stability, prompting investors to reassess the dollar’s traditional role as a defensive asset during times of market stress.
ING measured the currency’s safe haven characteristics by examining the three month correlation between the dollar index, US equities, and 10 year Treasury yields. Historically, the dollar tends to strengthen when stocks fall and bond yields decline, reflecting flight to safety flows. However, recent data suggests that this inverse relationship has weakened compared with 2024, indicating that investors are not automatically turning to the dollar in periods of uncertainty to the same extent as before.
Despite this erosion, the report emphasizes that the change appears cyclical rather than structural. Private investors continue to hold more than 80 percent of foreign owned US assets, suggesting that global capital remains anchored in US markets. There are also no clear signs of accelerated de dollarisation when examining the currency’s role in global reserves, cross border liabilities, foreign exchange turnover, and trade invoicing.
The Federal Reserve’s independence remains central to the dollar’s long term credibility. ING cautions that if markets were to perceive rate cuts as politically motivated or inconsistent with inflation dynamics, confidence in the currency could weaken more sharply. In extreme scenarios, such perceptions could trigger large scale capital outflows and heightened volatility in foreign exchange markets.
For now, the bank expects the dollar’s decline in 2026 to be more moderate than last year’s drop. ING projects the euro could rise to 1.22 dollars by year end, compared with levels around 1.18 currently. Such a move would reflect gradual rebalancing rather than a disorderly retreat from US assets.
Market participants continue to weigh the interaction between fiscal policy, trade developments, and monetary decisions. While the dollar’s dominance in global finance remains substantial, its performance increasingly reflects confidence in institutional stability and predictable policymaking, rather than automatic safe haven flows during episodes of market stress.
