The Euro just had its best week since the global financial crisis.

It has climbed just over 4% against the dollar this week as Trump sows doubt about the health of the American economy with his aggressive and fast-moving policies. 

This may signal shifting sentiments on currencies as reserves, or safe havens for investors, as in Macro climates like these, it is the dollar that should be climbing. 

There are a barrage of reasons as to why the dollar should be climbing.

Although Donald Trump may insight fear surrounding economic health, the more specific concern for investors is the uncertainty he brings to the table. 

John Foley, of the FT Lex column, highlights this by using the example of Tariffs: “[the] whole tariff situation is crazy. They’re on, they’re off. They’re imposed, they’re unimposed, they’re reimposed, they’re unimposed again.”.

He goes on to talk about the ensuing uncertainty from a situation like this: “When I’ve been talking to company executives, the story is always the same. [...] They just want to know what they’re doing. They just want to know where to put their assets.”

In theory, this should drive investors towards safe-haven assets, such as gold and the US dollar. 

Safe haven or reserve assets are a type of investment turned to during uncertainty. These assets are used to avoid market volatility (as experienced recently) offering low risk and high stability, even though they may provide lower returns compared to riskier investments.

This has been true for gold, up over 1% this week, but not the dollar. 

As previously mentioned, one of the biggest factors creating uncertainty is Trump’s aggressive and confusing approach to trade, notably through his high and far-reaching tariffs.

But again, we find a contradiction, when a country imposes tariffs, its currency is typically expected to rise in value.

The expectation is that by imposing tariffs, the U.S. will not import as many cheap goods, meaning that costs for businesses, and inevitably prices will be pushed up. Hence, the economy experiences inflation, so the central bank is expected to keep interest rates higher for longer.

We can see this as Federal Reserve Chair Jerome Powell has repeatedly reassured that he is in ‘no rush’ to reduce rates. Higher interest rates mean that it is more attractive for people to store their money in the U.S. due to higher interest earned on their balance.

So while the European Central Bank cut rates again this week, the Federal Reserve forecasted the continuance of high interest rates.

In theory, this should lead to investors trading the euro for the dollar in pursuit of the highest rates, but economic theory is defied again as instead the dollar is traded out for the euro.

So why has economic theory been hung out to dry by the currency markets? 

Perhaps the fact that the uncertainty is being created from within the United States, rather than by external shock, aids the lacklustre investor interest in the dollar. How could people move their money into the US to escape the uncertainty that the US is creating?

This suggests growing distrust in the United States, which controls the flow of the dollar, to maintain the dollar’s stability as a reserve asset. Financial analysts have cottoned on too. George Saravelos, from Deutsche Bank, recently acknowledged “the potential loss of the dollar’s safe-haven status”.

So if not the dollar, where are investors looking to store their money? 

The Euro, on its blistering rally, is certainly a contender.

Although, some remain sceptical. Sonal Desie, chief investment officer at Franklin Templeton argues that the Euro has not quite formed a credible alternative to the dollar. She says “You need vast pools of deep liquid capital markets” to be seen as a haven region, “and at the current point in time, the crown sits with the US”.

Despite this, Eurozone leaders push on with the newly invigorated agenda of cementing the Euro’s global status. Paschal Donohoe, chief of the Eurozone finance ministers, outlined a “heightened level of urgency” behind efforts to expand EU capital markets and adopt a digital euro.

He says that the efforts of the EU, and recent doubts in the US “offers a clear path to strengthening the role of the euro on the global currency stage”.