(Yicai) April 21 -- Shrinking confidence in US dollar-denominated assets and US Treasuries—triggered by the Donald Trump administration's tariff war—is fueling "Exit America" deleveraging and de-risking strategies. The price of gold has nearly doubled over the past two and a half years, reflecting investor anxiety.

The hard-hit 10-year US Treasury market, which experienced a sell-off last week, has begun to recover. However, the yield curve continues to steepen, signaling persistent credit concerns. US equities were mixed, while European and Asian equities mostly rebounded from the tariff shock.

The US Dollar Index slipped further below the 100 mark. On a more positive note, the VIX Index—also known as the “fear gauge”—has dropped back below 30, indicating that market panic has subsided. Nevertheless, the “Exit America” trend remains underway.

As the US bond market stabilizes, expectations for a May or emergency rate cut have largely diminished. However, based on CME Group's interest rate swap pricing, the market still anticipates one rate cut in June or July, with additional cuts in September and December. Fed Chairman Jerome Powell has emphasized that the Fed’s top priority is to evaluate the long-term impact of the tariff war on prices; for now, economic data will play a lesser role in rate-cut decisions.

In this context, financial markets have become the key variable. Capital markets have responded strongly to tariff policies, fostering deep risk aversion. Due to volatility in US stocks, Treasuries, and the dollar, investors are actively deleveraging and de-risking. There have been two or three alarming moments in recent weeks, yet the Fed has chosen to stand aside, leaving the government to handle the fallout.

The author maintains that the confidence crisis in dollar assets caused by the tariff war is far from over. While restraint in policy intervention may be commendable, overconfidence previously blinded policymakers to the collapse of Lehman Brothers, which ultimately triggered a global financial tsunami.

Once a safe haven in turbulent times, the US dollar has become one of the hardest-hit assets amid current market turmoil. US Treasuries—long considered risk-free—have experienced the most severe sell-off of the century, with skyrocketing risk levels.

The more significant issue is the loss of credibility, which directly impacts the US's role as a global leader. It remains to be seen whether this is a short-term panic or irreversible damage. However, investor confidence in “pan-dollar assets,” anchored in the US dollar and Treasuries, has undoubtedly been shaken. Still, assets must be held in some form of currency, and other major currencies offer limited alternatives—hence, the author believes the US dollar may retain its dominant position globally for the foreseeable future.

That said, this does not mean other countries will continue relying solely on dollar bonds without exploring alternatives. The nearly twofold rise in gold prices over the past two and a half years reflects investor unease, and central banks are leading the charge in gold purchases. The last time the dollar’s credibility faltered was in August 1971, when Nixon announced the decoupling of the dollar from gold and imposed a 10 percent tariff on imports. In the following decade, gold prices soared 19-fold.

The author is the president and chief economist of Springs Capital in Hong Kong. This article reflects only the author's personal views and does not represent the official position or forecast of the institution, nor does it constitute investment advice.

Editor: Emmi Laine