USD: Markets regain composure following turbulence as bonds recover – BBH

Market Calm Returns After Volatility

After a turbulent session yesterday, financial markets regained stability. Japanese government bonds bounced back, lifting other government bonds in their wake. Meanwhile, declines in equities and the US dollar came to a halt. Gold stood out as an exception, climbing to new all-time highs, largely fueled by persistent geopolitical risks, according to BBH FX analysts.

Limited Fallout from Treasury Sell-Off Headlines

Global politics are becoming increasingly complex as the world transitions from a single dominant power to a more fragmented, multipolar landscape. Canadian Prime Minister Mark Carney recently remarked that the established international order is experiencing a significant rupture, not just a gradual shift. He noted that major powers are now leveraging economic ties as tools of influence—using tariffs as bargaining chips, financial systems as means of pressure, and supply chains as potential weaknesses. In this evolving environment, gold is especially attractive because it is not tied to any single nation’s economic policies, is resilient during crises, and preserves its value over time.

Yesterday, Danish pension fund AkademikerPension announced plans to divest its $100 million stake in US Treasuries by the end of the month, citing concerns over the US government’s fiscal health. While this move carries more symbolic weight than real economic impact—Denmark’s share of US long-term Treasuries is just 0.10% of all foreign holdings and 0.03% of total outstanding US Treasury securities—the announcement still drew attention.

As highlighted in our previous daily strategy update, the notion that the Eurozone could use its Treasury assets as leverage in a potential trade dispute with the US is highly exaggerated and lacks credibility. However, over time, diminishing trust in US trade and security policies—along with political interference in the Federal Reserve’s independence—could further erode the dollar’s dominance as the world’s main reserve currency. This presents a long-term challenge for the USD.