The U.S. dollar experienced a decline against major currencies, reaching a six-month low against the euro. Investors are assessing the implications of U.S. President Donald Trump's tariffs on global trade and economic growth. The tariffs announcement impacted markets, reducing global stocks and prompting investors to seek refuge in less risky currencies, bonds, and gold. Concerns about a potential trade dispute triggering a global economic slowdown and inflation are prevalent.
President Trump announced a 10% baseline tariff on all U.S. imports, with higher duties on major trading partners. Adam Button, chief currency analyst at ForexLive, stated, "What the FX market is telling you, (is) that U.S. growth is going to suffer, and that U.S.-built systems are falling apart in global trade." He noted that the dollar was a crowded trade, and the reaction to tariffs has been to sell, thinning out such trades.
The dollar showed minimal response to weaker-than-expected data from the Institute for Supply Management (ISM), indicating a slowdown in the U.S. services sector. This report adds to concerns from consumer and business surveys, consumer spending, and inflation reports, raising stagflation fears. Despite this, new unemployment claims in the U.S. decreased, indicating labor market stability. Markets are looking to the non-farm payrolls report for further insights into the labor market and potential Federal Reserve interest rate policy changes.
Wall Street's main indexes experienced their largest one-day percentage losses since 2020. Investors are also focused on Fed Chairman Jerome Powell's upcoming speech, as a more hawkish tone could pose risks. Button remarked, "They have all been saying, 'we have less confidence that inflation is coming down.' Now you take away the rate cuts that are in the market, (it) can get ugly fast."
The euro reached a six-month high, rising 1.74% to $1.1037, marking its largest intraday gain since November 2022. The dollar decreased 1.95% against the Japanese yen to 146.445 yen and fell 2.35% against the Swiss franc to 0.8608 franc. Both currencies were at their strongest against the dollar in six months. The British pound increased 0.66% to $1.3093.
Deutsche Bank cautioned about a potential crisis of confidence in the U.S. dollar, suggesting that shifts in capital flow allocations could dominate over currency fundamentals, leading to disorderly currency movements.
Source: Reuters