Conflicting Policies, Confused Investors, and the Weak Dollar

Why It Matters

A soft dollar raises borrowing costs for emerging markets and erodes confidence in U.S. financial leadership, reshaping capital flows worldwide.

Key Takeaways

• US policy uncertainty mirrors non-reserve currency nations.
• Dollar weakness persists despite strong institutional framework.
• AI-driven growth fails to bolster greenback.
• Investor sentiment shaken by mixed fiscal and monetary signals.
• Global markets price US risk similar to emerging economies.

Pulse Analysis

The United States has long benefited from a unique blend of deep capital markets, a robust legal system, and the global reserve status of the dollar. These advantages traditionally insulated the economy from external shocks, allowing it to set the pace of worldwide growth. However, recent policy volatility—spanning trade, fiscal stimulus, and regulatory approaches—has introduced a level of uncertainty that investors now treat like any other non‑reserve currency nation, compressing the dollar’s premium.

Compounding the uncertainty are contradictory signals from the Treasury and the Federal Reserve. While the Treasury pursues expansive fiscal measures to sustain the AI‑driven boom, the Fed oscillates between tightening to curb inflation and pausing to avoid stalling growth. This policy tug‑of‑war has confused investors, prompting a shift toward safer assets and a measurable decline in the greenback’s value. President Donald Trump’s dismissal of the dollar’s weakness does little to reassure markets that rely on clear, consistent guidance.

The ramifications extend beyond U.S. borders. A weaker dollar inflates the cost of servicing dollar‑denominated debt for emerging economies, potentially triggering capital outflows and currency devaluations. Simultaneously, multinational corporations face higher import costs, squeezing profit margins. For the U.S., maintaining the dollar’s dominance will require tighter coordination between fiscal and monetary authorities, ensuring that the AI growth narrative translates into tangible currency strength rather than lingering doubt.

Conflicting Policies, Confused Investors, and the Weak Dollar

Şebnem Kalemli‑Özcan · February 17, 2026

Jade Gao/AFP via Getty Images

The United States’ unique economic advantages – deep financial markets, a strong institutional framework, and the world’s dominant reserve currency – should not be mistaken for invincibility. In fact, markets are already pricing US policy uncertainty the same way they price that of countries that do not have a reserve currency.

PROVIDENCE – The United States has long been the principal engine of global growth, powered most recently by an AI boom that shows no signs of slowing. The dollar, still the central pillar of global finance, has funded this transformation. Yet the greenback has been surprisingly weak, and while US President Donald Trump dismisses this as unimportant, markets see it differently.