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

The relationship between geopolitical risk and the US dollar is drawing fresh attention, with analysis from CEPR suggesting that heightened global tensions may be eroding some of the currency's traditional safe-haven appeal. The dollar has long been viewed as a beneficiary of uncertainty, but that pattern is not guaranteed to hold in every episode of geopolitical stress.

For markets, the key point is that safe-haven flows are not automatic. When risk rises, investors weigh a range of factors — relative growth prospects, interest rate expectations, and confidence in policy institutions — rather than simply defaulting to the dollar. That means currency moves during geopolitical shocks can be less predictable than conventional wisdom implies.

What to watch: whether the dollar continues to attract defensive demand during future flare-ups, and how alternative reserve assets perform in comparison. For observers, the takeaway is that the dollar's safe-haven status is a tendency, not a law — and it can shift as the global landscape changes.