Fool’s gold: How geopolitical risk is taking some of the shine off the US dollar - cepr.org

Geopolitical risk is increasingly being cited as a factor weighing on the US dollar's traditional "safe haven" appeal. According to analysis from cepr.org, the greenback's historical role as the go-to asset during periods of global stress is being tested as investors weigh a more fragmented geopolitical landscape against the currency's longstanding advantages.

The dollar's status as the world's dominant reserve currency has long rested on deep liquidity, US economic scale, and institutional credibility. The argument here is not that this status is disappearing, but that it may be gradually priced with more nuance. When geopolitical tensions intersect with trade policy, sanctions, and questions about reserve diversification, the dollar can face headwinds even during episodes of global uncertainty—challenging the assumption that it always rises when risk does.

For markets, the key takeaway is that "risk-off" may no longer translate automatically into dollar strength. What to watch: shifts in official reserve holdings, alternative payment arrangements, and whether safe-haven flows rotate toward gold or other currencies. These are slow-moving structural signals rather than immediate trading cues, but they inform how investors think about currency risk over longer horizons.