The US dollar (USD) is often referred to as the world’s reserve currency — the “king” of global finance. This reputation leads many to believe that the dollar is always king, always strong, and always the safest currency. While the dollar plays a dominant role in international trade, finance, and central bank reserves, the idea that it’s always superior or invincible is a myth. In reality, the dollar rises and falls like any other currency — and its dominance is shaped by complex cycles, policy decisions, and global economic dynamics.

This article explores why the dollar isn’t unshakable, when it loses strength, and how traders and investors should approach USD in context.

Why people believe the dollar is always king

1. Global reserve currency status
Over 50% of global reserves are held in USD. It’s the most widely used currency in trade and finance.

2. Dollar-based pricing of commodities
Oil, gold, and other major commodities are priced in USD, reinforcing its centrality in global markets.

3. Safe-haven narrative
During crises, investors often rush into USD for safety — especially when there’s global uncertainty or liquidity stress.

4. US economic dominance
The size and depth of the US economy and financial markets make USD assets highly attractive to global investors.

5. Perceived invulnerability
Because the dollar has remained dominant through wars, financial crises, and recessions, many assume it always will be.

Why the dollar isn’t always king

**1. The dollar moves in cycles

USD strength and weakness follow macroeconomic trends, interest rate cycles, and capital flows.

• It rises with Fed hikes, global risk-off sentiment, and capital flight
• It falls with Fed cuts, global recovery, and rising risk appetite for non-USD assets

2. Other currencies outperform during certain phases

• EUR, JPY, CHF, and GBP all experience phases of strength against USD
• In commodity booms, AUD, CAD, and NZD often outperform the dollar
• In risk-on markets, EM currencies (e.g. BRL, ZAR) can see strong inflows

3. Fed policy affects USD directly

• When the Fed signals easing or pauses rate hikes, USD typically weakens
• In contrast, when other central banks tighten faster than the Fed, USD can underperform

4. Rising de-dollarisation trends

Some countries are exploring trade in alternative currencies (e.g. yuan, euro) or creating CBDCs to reduce USD dependency.
While minor now, long-term shifts could impact the dollar’s dominance.

5. The dollar isn’t immune to inflation or fiscal stress

The US runs persistent deficits and prints more currency during crises. While manageable for now, long-term confidence in the dollar isn’t guaranteed.

Historical examples of dollar weakness

• 2002–2008: USD weakened sharply as global growth surged and the Fed held rates low post-dot-com crash.
• 2017–2018: The dollar weakened despite US growth due to policy divergence and strong EM/commodity markets.
• 2020 (mid-pandemic): Massive stimulus and global risk-on rotation weakened USD until rate hike cycles resumed.

How traders and investors should view the dollar

• Track DXY (dollar index) against macro drivers: yields, CPI, Fed policy
• Watch interest rate differentials with major currencies
• Study correlations between USD and gold, oil, risk assets
• Understand global sentiment — USD typically rises in fear and falls in optimism
• Treat USD as a cycle-sensitive asset, not a static one

Conclusion

The dollar may be dominant, but it is not always king. Like any currency, its strength rises and falls based on global cycles, central bank actions, and investor sentiment. Believing the dollar is always supreme blinds traders to high-probability opportunities in other currencies — and ignores the fundamental shifts shaping the global economy. A smarter approach is to understand when the dollar leads — and when it lags.

To master macro trading strategies around the dollar, interest rates, and global FX flows, enrol in our Trading Courses at Traders MBA — where global perspective meets precision execution.