MW The world needs the dollar, even a battered one, says this strategist. Here's how to play that.

By Barbara Kollmeyer

The dollar still has best qualities for a global reserve currency

Some much-needed relief for investors may be on the way for Tuesday with stock futures pointing to a higher open and the dollar getting a break, though hovering around three-year lows.

For those nervously keeping watch on the dollar's fortunes, as worries about the Fed's independence add to trade worries, our call of the day from Andreas Steno Larsen, says fear not, the greenback will survive, though maybe a lot weaker than now.

Read: What the 'fire Powell' trade could look like as Trump attacks Fed chair again

"The bottom line is that there is no viable alternative," said Larsen, in a note on the Real Vision financial television platform. But the chief investment officer of the Steno Global Macro Fund and chief executive officer at Steno Research has concerns over the meltdown getting worse.

He flags some "early warning signals" that liken the dollar's crisis to that of emerging market currencies of the past.

For example, until recently, the greenback traded at a premium to real rates, suggesting a "positive geopolitical premium" baked in, but the Japanese yen $(USDJPY.FOREX)$ - up 10% versus the greenback this year - is now trading with that premium instead.

"In other words, the USD has weakened sharply despite real rates indicating it should have strengthened materially against, for example, the JPY and the CNY [Chinese yuan]," he said.

Still, that's not a hard and clear signal that global reserve managers are a) selling the dollar to buy euros or the yen, and b) therefore selling Treasurys to buy German bunds or Japanese government bonds, he argues.

What usually happens after dollar weakness, he points out, is that foreign holdings of Treasurys rise shortly after dollar weakness. A weaker dollar tends to make it easier for countries like China, Japan and other big holders to boost U.S. reserves.

"If the U.S. administration manages to regain global credibility, they could be setting the stage for a strong backdrop for renewed foreign demand for U.S. Treasurys," said Larsen.

"The risk, however, is that they've already managed to scare off the global community to a degree that's hard to repair - potentially leading to USD selling alongside U.S. bond selling (USD to gold, and USD to EUR). And that's exactly what we're seeing right now," he said.

Getting back to point about whether the dollar's status as No. 1 reserve currency is at risk, Larsen said he has an "incredibly hard time identifying a plausible alternative," providing investors can withstand some liquidity-driven noise in the coming days.

A truly great global reserve currency needs three things, said Larsen. The first is that global trade is conducted in that currency, with the dollar remaining "firmly" in that territory, and boosting its share of global transactions, he said.

Secondly, the currency needs a "very liquid and solid underlying bond market with no restrictive access for foreigners. That bar is only currently met by the dollar and the euro, with the yuan market largely closed, so it cannot replace the dollar as that global reserve currency, he said.

And third, that reserve currency must be from a "stable currency zone," with such features as "free labor and capital mobility, flexible prices and wages." The dollar again outperforms here, beating out the euro in some aspects, Larsen said.

With "no viable alternative," the dollar will "likely remain the reserve asset of choice - just at a much cheaper price. All roads currently lead to a weaker dollar, especially if the increasing hostile global negotiation climate forces the Fed to become the marginal buyer of U.S. debt once again - which certainly can't be ruled out," he said.

So Larsen's advice right now is to own hedges against a weaker dollar, such as gold and bitcoin, and he sees the precious metal climbing to more than $4,000. "It's more important than ever," he said.

In recent posts on X he has warned that investors should quickly head for the hills if Fed Chairman Jerome Powell finds himself out of a job at the hands of Trump. He has also shared this chart frequently:

Also read: The dollar will remain the world's reserve currency - for now. But stocks and bonds could keep struggling.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are pointing to a bounce, though recouping just a small part of Monday's selloff. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are steady, but the dollar DXY is down and gold (GC00) is higher, recently tapping above $3,500/oz.

   Key asset performance                                                Last       5d      1m       YTD      1y 
   S&P 500                                                              5158.2     -3.83%  -8.99%   -12.30%  3.84% 
   Nasdaq Composite                                                     15,870.90  -5.10%  -10.76%  -17.81%  3.85% 
   10-year Treasury                                                     4.429      9.00    10.80    -14.70   -17.70 
   Gold                                                                 3498.1     7.46%   15.52%   32.54%   45.35% 
   Oil                                                                  62.79      2.13%   -8.07%   -12.63%  -23.53% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Tesla $(TSLA)$ earnings are due after the close, a day after a near 6% tumble for the stock after one analyst warned of a "code-red situation."

Corporates reporting earnings Tuesday include 3M $(MMM.AU)$, whose shares fell after a warning that tariffs could cut 2025 earnings per share by 40 cents. GE Aerospace $(GE)$ affirmed its outlook and the stock is up. Halliburton $(HAL)$ posted a profit and revenue fall, which is hitting shares. Northrop Grumman $(NOC)$, Genuine Parts $(GPC)$, Kimberly-Clark $(KMB)$ and Lockheed Martin $(LMT)$ are still ahead.

Philly Fed Pres. Patrick Harker is due to speak at 9:30 a.m., followed by Minneapolis Fed Pres. Neel Kashkari at 2 p.m. and Richmond Fed Pres. Tom Barkin at 2:30 p.m.

Trade talks between the U.S. and India are apparently making progress.

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The chart

Jurrien Timmer, director of global macro at Fidelity, shares this chart of S&P 500 levels worth watching. Week nine into the stock market correction sees the index "churning in between the -10% and -20% correction thresholds," and unable to bust past resistance at 5,500, he notes. If the S&P 500 can get past this resistance level, "we may be able to assume that the correction is over and that we only had a 'mini' bear,'" similar to 1998 and 2018, he says. But if the 4,835 low is retested then a "real" bear market is probably getting under way and the index will head further into a 20% to 30% correction range, Timmer writes in a LinkedIn post.

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   HOLO    MicroCloud Hologram 
   AAPL    Apple 
   PLTR    Palantir Technologies 
   AMZN    Amazon.com 
   TSM     Taiwan Semiconductor Manufacturing 
   MLGO    MicroAlgo 
   MSTR    MicroStrategy 

Random reads

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-Barbara Kollmeyer

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April 22, 2025 07:49 ET (11:49 GMT)

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