(Bloomberg) — The present crop of foreign-exchange traders isn’t demonstrating the same reflexive instinct to grab for U.S. dollars in a crisis that previous generations have shown and that’s reinforcing the currency’s structural bearishness.
- In recent years the yen has pushed king dollar part of the way off its throne and now the euro is also squeezing into the picture. In Asia, the yuan is establishing its own credentials as a haven.
- The performance of the euro through this year’s multiple North Korean missile launches is in stark contrast to the Greek crisis when its very future as a currency was in doubt. Tellingly, the euro has barely lost any value against the Swiss franc recently, despite North Korea’s nuclear test. Even speculative media stories about the return of the Deutsche Mark have largely disappeared.
- Despite Brexit — or perhaps because of it — Europe is showing a level of political unity between France and Germany not seen since the days of Helmut Kohl and Francois Mitterrand. The pairing of Emmanuel Macron and Angela Merkel certainly looks sturdy compared to the fraught relationship between Donald Trump and his Republican Party colleagues, and that’s positive for the euro as a refuge.
- This year has also witnessed the emergence of the yuan as an intra- Asia haven of choice during the various short-term eruptions of North Korea-related angst. There is a lot to prove before the yuan has long-term haven status, but it will be a tag that fits as China’s financial markets reach maturity.
- On the flipside, the share of global reserves kept in dollars is likely to shrink over time, as my colleague Mark Cudmore has discussed recently, and that’s likely to mean a less bullish currency in times of trouble.
- Don’t count on the dollar being the go-to destination for investors when the next global financial crisis hits. Sure, they’re unlikely to seek shelter in Bitcoin and other cryptocurrencies just yet, not even Millennials. But they may well prefer a haven basket that includes more yen, euro and yuan.
Mark Cranfield is a former FX trader who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice. To contact the reporter on this story: Mark Cranfield in Singapore at firstname.lastname@example.org To contact the editors responsible for this story: Mark Cudmore at email@example.comLars Klemming, Benjamin Purvis