What can we learn from the high-frequency response in bond and currency markets to the tariff announcement about the status of the US dollar as the global reserve currency? Short paper. tinyurl.com/tr8u383w joint work with Arvind Krishnamurthy, Zhengyang Jiang (@ProfJiang ), Rob Richmond (@rrichmond ), and Chenzi Xu (@chenzix) We conclude that the tariff announcements have led investors to question the role of the dollar as the reserve currency. This explains why the dollar has depreciated by 3.4% between April 4 and April 14 in spite of rising US rates. As a result, the willingness of foreign investors to pay extra for the safety of dollar safe assets has declined. Our measure of this willingness to pay is the 1-year US Treasury basis, measured against the German Bund, plotted in black in the Figure below. The basis (left vertical axis) is the yield on the synthetic Treasury constructed from the German bund minus the yield on the actual Treasury. The decline in the Treasury basis explains the depreciation of the dollar over the past few weeks, in spite of rising rates. 🧵 below. Plot of 1-year Treasury basis against German Bund. Defined as German yield (hedged into USD) minus US Treasury yield (left vertical axis). Euro/USD exchange rate (right vertical axis).