When the novel coronavirus sent investors running for the exits in March, there was a mad dash to snap up US dollars, the world’s ultimate safe haven asset. But as the United States struggles with fresh Covid-19 outbreaks weighing on the economic recovery, the dollar has stumbled. Now, some on Wall Street warn it could fall further, due in part to President Donald Trump’s handling of the crisis and isolationist policies. “We expect the US dollar to follow a path of reduced dominance and weaken over the long term,” Nomura said Monday in a report to clients. The dollar — an important symbol of America’s global standing — remains the primary currency of choice for investors, who use it to trade a wide array of assets around the globe. It’s also the world’s top reserve currency, held in large quantities by governments, central banks and other major financial institutions. Dollar bulls and skeptics alike note that at present, there’s no real alternative. Yet investors are becoming less sanguine about the dollar’s outlook. Growing debt loads and Trump’s commitment to “America First” policies have added to risks. A diminished role for the United States on the world stage could encourage allies to step up holdings of other top currencies. Meanwhile, asset managers like BlackRock\n \n (BLK) are encouraging clients to consider investment opportunities in Europe, where countries appear to have a better handle on the health and economic challenges posed by the virus. This could hurt the dollar’s value in the coming months, though any substantial change in the global currency regime would take decades. A weak outlook Those looking to bet against the dollar point to the worsening economic outlook in the United States, where the number of confirmed Covid-19 cases has climbed to nearly 3.4 million. As US caseloads spiral out of control, many states are reimposing strict lockdown measures, threatening the fragile recovery that started in April. In California, which boasts the fifth largest economy in the world, Gov. Gavin Newsom on Monday shut indoor seating at restaurants, movie theaters, zoos, museums and bars. At least 27 states have now put a hold on reopening businesses or reimposed measures aimed at slowing the spread of the virus. “The US has reopened too early, as you can see,” Nomura strategist Jordan Rochester said. “The dollar should weaken in the medium term thanks to the Covid response.” He also noted concerns that unemployment will stay elevated, a view shared by some of America’s biggest banks. The economic environment supports the view that US interest rates will stay near zero for longer, weighing on the dollar. It also doesn’t bode well for the country’s ballooning fiscal deficit. US federal debt is projected to reach 101% of GDP this year. The US government is ramping up borrowing to fund massive stimulus programs to prop up the economy. The budget deficit for June surged to $864 billion, the Treasury Department said this week. And it’s coupled with a sizable current account deficit, which means the United States spends more on goods, services and investments abroad than it brings in. Other developed economies are borrowing way more, too. But in the United States, the government is issuing debt faster than the Federal Reserve is buying it. That means there are more US Treasuries in the market, which hangs over the value of the dollar, Rochester said. Eye on the euro Meanwhile, the euro looks increasingly appealing to some investors. It has climbed about 2% against the dollar so far this year despite a savage recession in Europe. Rochester noted that high-frequency data suggests the recovery has stalled in the United States as the country battles fresh outbreaks, while in Europe, which entered lockdown sooner, activity is still improving. There’s also optimism that despite their differences, European nations could agree on a recovery package this month, which would see the bloc raise €750 billion ($825 billion) via financial markets through its 2021-27 budget. This could “represent a major step toward greater fiscal policy coordination in the region and, importantly, a new source of highly-rated euro-denominated debt for global investors,” Goldman Sachs strategist Zach Pandl said in a note to clients last month. Pandl said that he expects the euro to appreciate gradually against the dollar but a quicker move is in the cards. “Recent news on the euro area has cut in a clearly positive direction,” he wrote. The United States boasts a long list of blue-chip companies that are unlikely to fall out of favor. But European assets are getting a closer look as conditions in the region improve, which could drive demand for the region’s currency. A Bank of America survey of fund managers released Tuesday found a “big jump” in European stock holdings. More than 40% of those surveyed said they wanted more exposure to the euro. Few alternatives, for now There are reasons to be cautious. The decline of the US dollar has been predicted on many occasions, and it’s always been premature. The dollar benefits from being the currency of choice for many global transactions, including the trading of commodities like oil. It accounts for 62% of the world’s currency reserves and is involved in 88% of all global currency trades. That’s unlikely to change drastically in the near or medium term. “I don’t think we are at the point where the dollar will lose its attraction,” said Jane Foley, head of currency strategy at Rabobank. She noted that because the dollar tends to strengthen when the global outlook deteriorates, problems in the United States, the world’s largest economy, could actually feed demand for the currency. But over time, US debt concerns, a weak economy and greater cohesion in Europe could start to undermine the currency, Nomura said. The bank says the dollar could lose up to 20% of its value over the next five years. The trend may be exacerbated by geopolitics. If Trump wins a second term, Nomura thinks an ongoing push toward deglobalization could undermine the US dollar and encourage greater use of China’s yuan, or renminbi, to settle trades. Research supports the idea that an “America First” philosophy could hurt the dollar in the long run. A working paper published by the National Bureau of Economic Research in 2017 found that foreign demand for dollars could decline if the country was no longer seen as guaranteeing the security of its allies, leading them to hold more of their reserves in euros, yen and renminbi. Foley noted that Russia and China are increasingly avoiding the dollar when settling crude oil deals, and that after the United States pulled out of the Iran nuclear agreement, top EU officials began lobbying for greater use of the euro. Companies that kept operating in Iran feared the Trump administration would implement sanctions that blocked their access to dollars. Then there’s the rise of digital currencies, which could also eat away at the dollar’s sovereignty. Facebook\n \n (FB) is pushing ahead with its Libra project, while China’s central bank is testing a digital version of the renminbi. Huge regulatory barriers remain due to concerns about fraud and financial crime. But Nomura said it’s especially focused on efforts in China, where the desire to increase global use of the renminbi is strong.