POLL-US dollar’s safe haven halo flickers amid Fed, fiscal and trade jitters

By Sarupya Ganguly

BENGALURU, May 6 (Reuters) - Concerns are mounting about the dollar's safe haven appeal, according to a majority of FX strategists surveyed by Reuters who forecast the global reserve currency will decline further over the coming year amid fears of an economic downturn.

Since President Donald Trump's return to the White House, the greenback .DXY is down nearly 9% against a basket of major currencies, with his incessant flip-flopping on tariff policies battering investor sentiment.

A 90-day reprieve to his April 2 reciprocal tariffs has done little to aid a revival.

Over 55% of respondents, 46 of 83, surveyed April 30–May 6 who answered an additional question voiced concern about the dollar’s safe haven status — a sharp rise from about a third in the April survey — though most conceded no clear alternative exists yet.

"I'm very concerned," said Steve Englander, head of global G10 FX Research at Standard Chartered.

"It's like a betrayal of confidence from a friend. You can argue it didn't matter, or that you didn't mean it, but your friend still remembers it. That's where the dollar currently is with respect to international confidence."

"If you'd asked me this two months ago, I'd say what matters for the dollar in the first instance is the stimulus, and the funding - whether or not they've actually gotten revenues - would be secondary. Now it's clear markets are much more concerned about the long-term fiscal path."

These worries have weighed heavily on the greenback in recent weeks. But the euro EUR=, currently at $1.13 and barely off an over-three year high on April 18, was not expected to make further gains by the end of the month or by end-July, according to survey medians from over 70 forecasters.

"We're generally quite flat with our view on euro-dollar in the short-term. There is still some room for the dollar to recover because of signals from the Trump administration they are shifting from threatening and announcing big tariffs to a phase of negotiating trade deals," said Francesco Pesole, currency strategist at ING.

A near-80% majority of strategists, 47 of 59, expected a decrease in dollar net-shorts in U.S. Commodity Futures Trading Commission positioning NETUSDALL= or not much change by end-May.

The common currency was then predicted to rise to $1.14 in six months and $1.16 in 12 months, poll medians showed — its biggest year-ahead monthly forecast upgrade since November 2010.

The U.S. economy contracted for the first time in three years last quarter, swamped by a flood of imports as businesses raced to avoid higher costs from tariffs.

While interest rate futures are pricing in three Federal Reserve rate cuts by year-end, policymakers have hinted they were in no hurry to reduce rates anytime soon.

"We're more bearish on the dollar in the second half of the year. More realization of weak U.S. hard data, the Fed starting to actually cut rates as market are pricing, some of the rotation out of U.S. assets and concerns around Fed independence will likely come back into view," said Erik Nelson, macro strategist at Wells Fargo Securities.

Despite Trump calling Fed Chair Jerome Powell "a total stiff" and repeating calls to lower interest rates, he said he would not remove Powell before his term ends in May 2026.

"Everything depends on Fed independence. If there’s ever fear the Fed is losing its independence it seriously undermines the dollar’s safe haven status," said Brian Rose, senior U.S. economist, UBS Global Wealth Management.

"We're seeing the Japanese yen or Swiss franc, which are sort of the backup safe havens, benefiting from the current situation."

The yen JPY= and the franc CHF=, both up nearly 10% so far this year, were expected to gain a further 2.8% and 0.4% respectively, in 12 months.

(Other stories from the Reuters May foreign exchange poll)