Is the US Dollar Still a Safe Haven? Why USD, JPY and SGD Are Behaving Differently

For years, the US dollar has been one of the first currencies investors turn to during market stress — its role in global trade, finance and funding makes it hard to replace. But recent moves raise a question: does the dollar still behave like a safe haven when the source of uncertainty is the United States itself?

The latest sell-off in technology stocks is a useful case study. Investors have questioned whether massive AI infrastructure spending will generate sufficient returns, while elevated oil prices and geopolitical tension have added to the uncertainty. Yet currencies haven't responded in a simple, uniform way.

Reuters reported on October 23 that the Japanese yen strengthened as investors sought safety during the equity sell-off, while falling US Treasury yields weighed on the dollar. The yen's gains weren't uninterrupted, but its performance showed defensive demand can favour currencies other than USD. (Reuters)

That doesn't mean the dollar has lost its safe-haven status. It means we need to understand what kind of risk investors are trying to protect themselves against.

USD: a safe haven, but not in every scenario

The dollar's appeal comes from more than the US economy. It's central to international payments, borrowing and financial markets, and US Treasuries provide a deep pool of highly liquid assets. When investors need dollar funding or want to reduce risk exposure, demand for USD can increase.

But the dollar faces competing forces. If a global shock creates demand for liquidity, USD may strengthen. If the shock causes investors to expect weaker US growth or lower Fed rates, falling Treasury yields may instead weigh on it. The source of the shock matters too — uncertainty originating in US policy or concerns about US government finances can complicate the traditional safe-haven response.

Reuters reported on October 20 that the dollar had gained around 4% since the Iran war began, supported by higher rates, US economic strength and the country's energy-export position — while noting that rising debt and policy uncertainty could weigh on its longer-term appeal. (Reuters) These aren't contradictory: a currency can benefit from one crisis while remaining exposed to other risks.

The dollar's safe-haven role hasn't disappeared. Its response depends on the balance between liquidity demand, interest-rate expectations and confidence in the US outlook.

JPY: still defensive, but sensitive to funding positions

The yen has a different set of drivers. During stress, investors may buy JPY as a hedge or unwind positions funded by borrowing in yen to invest in higher-yielding assets elsewhere. When those positions are reduced, investors buy yen back, supporting the currency.

But the process isn't automatic — interest-rate differentials, Bank of Japan policy expectations and the attractiveness of higher-yielding assets can continue to weigh on JPY. That's why the yen can strengthen during an equity sell-off without establishing a lasting upward trend. It also matters for reading headlines: a temporary rise in yen demand as a hedge isn't necessarily evidence of a permanent allocation to Japanese assets. The distinction is between buying a currency to protect a portfolio and buying it because investors want to hold more assets in that currency over the longer term.

SGD: the new safe haven — or a different kind of trade?

The Singapore dollar has recently drawn attention for another reason. The Business Times reported on October 22, citing strategists, that SGD was gaining favour as a funding currency for carry trades: cheap borrowing costs, relatively low volatility and more limited expectations for further SGD appreciation were making it attractive to investors borrowing in one currency to invest in higher-yielding assets elsewhere. (The Business Times)

That's an important distinction. A safe-haven currency is sought for protection during uncertainty; a funding currency is borrowed to finance investments elsewhere. A currency can play both roles in different circumstances, but they aren't interchangeable.

Singapore's framework is also different: the Monetary Authority of Singapore uses the exchange rate as its main policy tool, rather than relying primarily on a domestic policy rate. That, plus low volatility, can make SGD attractive for particular funding and portfolio strategies — but it doesn't automatically make it a replacement for USD or JPY in a severe liquidity shock. So the SGD–JPY story should be read carefully: the reporting points to SGD gaining appeal as a carry funder, not proof that investors are abandoning JPY as a haven and replacing it with SGD.

Three currencies, three different roles

These are possible mechanisms, not fixed rules — the same currency can respond differently to different shocks.

What FX traders should watch

The useful question isn't simply which currency is labelled safest. It's whether price action confirms the role investors are assigning to each.

• For USD: does the dollar strengthen when equities fall? Are Treasury yields rising or falling? Is demand for dollar liquidity outweighing changes in US rate expectations?
• For JPY: is the yen gaining broadly against higher-yielding currencies, or only against the dollar? Is the move accompanied by evidence of carry-trade unwinding?
• For SGD: is it supported by defensive demand, or is its funding appeal increasing because of low volatility and relative borrowing costs? Those are different explanations and shouldn't be confused.

Cross-pair comparisons help. If USD weakens while JPY strengthens during a sell-off, the market may be favouring yen-based defensive positioning over the dollar at that moment. If SGD is being used to fund carry trades, that says more about relative funding economics than a wholesale change in safe-haven preferences. No single session proves a lasting shift — the evidence strengthens when the same behaviour persists across different shocks.

The lesson

Safe haven, reserve currency and funding currency are three different roles. The dollar can remain central to global finance without strengthening in every risk-off episode. The yen can attract defensive demand without entering a sustained rally. And the Singapore dollar can gain appeal as a funding currency without replacing the traditional havens.

So the more useful question isn't whether one currency has permanently lost its status. It's: what risk are investors trying to hedge, what are they borrowing to fund their positions, and which currency is actually responding to that demand?

Price is evidence, not proof. The job is to identify the mechanism behind the move — and keep testing that explanation as new information arrives.

FXStrength explains the forces behind market moves for educational purposes. This article is not financial advice or a recommendation to buy or sell any currency.