A few dozen German and French soldiers flying toward the Greenland ice sheet is not, at first glance, the image of a pivotal moment for Western Europe, much less the kind of event capable of moving the endless roulette wheel of the markets or impacting the U.S. economy. But the financial world takes note of almost everything. The fall of the dollar, which has lost a fifth of its value against the euro since 2025, is the most tangible reflection of how money, through a series of shocks, has adapted to a world—that of Donald Trump—where the old rules no longer apply. Conversely, the Republican’s decision to nominate Kevin Warsh to chair the Fed is yet another sign that the White House regards Wall Street with respect.

Tensions between Europe and the United States are part of a deeper rupture within the financial world, adding to the trade war declared nine months ago with the misnamed “Liberation Day,” and the attacks on the independence of the Federal Reserve. The evolution of the dollar and gold reflects the growing concern about the political power plays being carried out by President Trump, both domestically and internationally, and therefore revolves around the potential fall of the dollar, says Carsten Menke, an analyst at the investment bank Julius Baer, ​​in a report. Currency has been (and despite everything, still is) the center of gravity of the economic system: the only banknote that no inhabitant of the Earth rejects and the global yardstick, from black market dealings to high finance. This exceptional status, described as an “exorbitant privilege” by French President Valéry Giscard d’Estaing back in the 1960s, means it serves as a reference point and, in times of crisis, a refuge. Therefore, the currency has always traded somewhat higher than it should. Now another word is being applied to the dollar, debasement (devaluation or degradation), which reflects the reversal of this premium.

Investors have accepted that they must diversify their risks and not entrust all their reserves to a currency dependent on someone even more volatile than the financial markets themselves. In the short term, speculators are betting on dollar declines, especially during periods of economic downturn (the exact opposite of before). In the medium term, institutions and companies with dollar exposure must protect themselves against these anticipated drops. And in the long term, large asset managers with trillions of dollars in portfolios, such as Amundi, Pimco, and Allianz, are gradually shifting their investments. “Multinational companies and investors are likely to continue reducing their dollar exposure through dollar sales linked to hedging instruments,” sums up Derek Halpenny, head of global markets in Europe for the Japanese firm MUFG.

But the occupant of the Oval Office doesn’t seem to care about what’s happening beyond his borders. “Look at the business we’re doing. The dollar’s doing great,” he said this week when the alarm bells started ringing. The American tycoon’s words contributed to deepening the losses of the greenback. Trump, however, didn’t seem bothered. In his economic ideology, this means that, in the blink of an eye, products manufactured in his country become cheaper for international customers, which favors exports. Conversely, goods from foreign companies become more expensive, hindering imports and favoring domestic trade. Although the government is interested in maintaining the dominance of the U.S. financial system, a weaker dollar can favor U.S. exports in the short term, explains the investment bank Berenberg: “The market reaction shows that political signals and statements can have a strong influence.”

The U.S. president has spent months searching for ways to boost the economy. It was one of his campaign promises. And it’s practically the only ace he has left in his sleeve after getting the worst approval rating for a president in his first year in decades, according to CNN polls. Nearly two out of three citizens disapprove of his performance, marked by vacillations in his aggressive trade policy, threats to traditional allies, harassment of political rivals, and a populist rhetoric that is causing deep divisions in the country.

An affordability crisis is sweeping the country from north to south and east to west. The Democrats have sensed an opportunity. The unexpected victory of the socialist Zohran Mamdani in the New York mayoral race, waving the banner of affordability, has revitalized a party reeling from its loss of the presidency a year ago. The Democrats are poised to capitalize on the midterm elections at the end of the year. Polls are not in Trump’s favor, and he sees his presidential power threatened. If he loses control of both houses of Congress, he will lose the political initiative and risk impeachment proceedings by the Democrats. “You got to win the midterms because if we don’t [...] they’ll find** a reason to impeach **me,” he told Republicans in early January.

For all these reasons, he has been pressuring the Federal Reserve for months to lower interest rates. Lower rates reduce the cost of borrowing and allow families and businesses to spend more. This would essentially add fuel to the economy. Similarly, a weaker dollar also benefits the economy in the short term. Analysts at Bank of America, one of the country’s largest financial institutions, speak of Donald Trump’s “economic panic policy” in the wake of his 2025 election defeats in New York, New Jersey, and Virginia: “The devaluation of the U.S. dollar and the economic boom on the eve of the midterm elections is suddenly the main focus for everyone.”

But every card has its flip side. If Trump’s ace is to stimulate the economy, his plan has drawbacks: inflation. A weaker dollar fuels inflation. If demand increases, companies will almost automatically raise prices. That’s how the market works. Something similar would happen if the Federal Reserve heeded his repeated demands to cut interest rates further. For now, on Friday the White House announced Kevin Warsh as the next Fed chairman, replacing Jerome Powell, the central banker who has stood up to him. Warsh said he is committed to lowering the cost of money more aggressively.

The markets will decide. But economics textbooks warn that inflation thrives on low interest rates. Investors know that this combination leads to higher long-term rates, which in turn increases the cost of financing and reduces investment. But of course, the change isn’t instantaneous, and Trump doesn’t seem to want to look beyond next November, when all seats in the House and a third of the Senate will be up for grabs.

A second drawback of a weak dollar and the risk of inflation is the impact on public debt and the interest rates at which the United States finances its large deficit. The dollar’s privileged position, benefiting from constant demand, has allowed the country to borrow with relative ease. “For decades, U.S. Treasury bonds offered attractive yields, while the dollar provided a hedge. That era is over,” explains a report by Pimco, the world’s largest sovereign bond manager. “This shift has profound implications. Central banks and investors are reassessing dollar concentration, seeking alternatives that do not penalize prudent risk management.”

It would not be accurate to speak of capital flight. According to data from the U.S. Treasury (and as Pimco also points out), money continues to pour into American assets, primarily driven by the surge in large technology companies. However, it is possible that the market will demand higher yields on Treasury debt due to the combination of a high deficit, rising inflation, and the prospect of a declining dollar. The interest rate on the 10-year bond, which forced Trump to declare a tariff truce hours after having denied it, will be the ultimate arbiter for the president, as it has been for dozens of other leaders.

The implications of a weak dollar don’t end there: just as it stimulates the U.S. economy, a strong euro cools the European economy. The currency’s performance will be on the agenda at the European Central Bank Governing Council meeting next Thursday, and some members have already warned of this impact.

Another indicator has broken all records: gold, a monetary reference with millennia of history, has doubled in price in just one year thanks to runaway demand. UBS estimates that three-quarters of the rise is due to changes in U.S. policy, the bank says, an estimate that likely underestimates the impact of threats to the Fed’s independence and the Greenland conflict.

In just one year, Trump has changed the rules of the world order. His extreme nationalist policies are isolating the United States. He has alienated traditional allies and sown distrust in international relations. The market, with bonds and the dollar as its two favorite weapons, is not immune to politics. It never is. So far, it is the only thing that has managed to rein in the Republican, emboldened after the coup in Venezuela.

The selection of Warsh, a banker with experience at the Fed, on Wall Street, and in the Republican Party before Trump, was a pragmatic nod to investors, who responded with a historic plunge in the price of gold this Friday. Even so, the dollar is gradually losing its traditional value as a safe-haven asset. The United States can manage its own currency at will, according to domestic interests or as a geopolitical weapon; it is the rest of the world that must adapt to this environment. Richard Nixon’s Treasury Secretary, John Connally, summed it up in 1971 after a series of discussions with European finance ministers shortly after the U.S. abandoned the gold standard: “The dollar is our currency, but your problem.”

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