Between mid-January this year, when the US Congressional Budget Office called out US public debt as rising from 100% of GDP in 2025 to 107% by 2029 (surpassing the record set just after World War II) and to 118% by 2035, and mid-May, when Moody’s downgraded the US’s sovereign rating from Aaa to Aa1, joining other raters in similar actions, a debate about the demise of the US dollar’s dominance has risen to a din. In the event, US financial markets reacted tepidly to Moody’s downgrade. Investors sold government bonds, with the yield on the 30-year paper briefly rising above 5% and on the 10-year note to 4.47%. Soon, however, markets reposed into uneasy serendipity. The 30-year yield eased below 5%, the 10-year to 4.54% by May 21, and stocks ended successive trading sessions on higher notes. There was just too much else to focus on, with the ongoing tariff tirade ‘Trumped’ up and down and up, and the much-awaited tax cuts in the big beautiful bill taking shape in Congress. By July-end, the 30-year yield fell to 4.84% and the 10-year to 4.35%. Even the 2-year yield, which had topped 4% at the time of the downgrade, has eased to 3.93%.Dollar DynamicsThe US dollar has depreciated, which is the main objective of the tariff tantrum, by 9.4% from its recent peak in mid-January in terms of the DXY index, which is a measure of the US dollar against a basket of six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and the Swiss franc.
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