An overlooked effect of Trump's trade war: the weakest dollar in years

• The US dollar is at a multiyear low versus its international peers.
• The declines are anomalous, as the greenback has historically gained during times of market turmoil.
• It suggests investors are losing faith in the US as a safe haven amid unpredictable tariffs.

While the impact of President Donald Trump's trade war on the stock and bond markets has been well documented, one crucial byproduct of the tariffs has slid under the radar.

Sure, the S&P 500 briefly dipped into bear-market territory before posting its best week in years. But the US dollar index — which is weighted against a basket of its international peers — is sitting near a three-year low.

This is strange behavior, considering the greenback has historically been viewed as a safe haven during times of market volatility. After all, despite the S&P 500's hot week, it's still down 13% from recent highs.

The anomalous dollar moves may reflect souring global sentiment toward the US. Between aggressive tariffs and a swelling national debt load, suddenly the US doesn't look so appealing to some.

George Saravelos, Deutsche Bank's global head of foreign exchange research, said that foreign investors were losing their appetite for the dollar, which serves as the main reserve currency for foreign banks. He said that a further prolonged dollar decline could undermine Washington's ability to sustain fiscal deficits.

In a note titled "How to lose a safe haven status in 10 days," Capital Economics suggested the greenback could fall in the ranks if its losses didn't end.

"In our view, it is no longer hyperbole to say that the dollar's reserve status and broader dominant role is at least somewhat in question, even if the inertia and network effects that have kept the dollar on top for decades are not going away any time soon and our base case is that it will recover to some degree," the investment firm wrote Friday.

To be sure, it was the intention of the Trump administration to achieve a weaker dollar to boost exports — though doing so through tariffs was likely unintentional. Before the president's announcements, analysts expected protectionist policy to boost dollar strength, presuming that tariff-induced inflation would keep interest rates higher.