Dollar Slides While Yen and Swiss Franc Gain on Escalating US Tariffs

Image Credit: Reuters

The dollar weakened on Thursday, and the euro strengthened after President Donald Trump unveiled unexpected, aggressive tariffs on U.S. trading partners, sending shockwaves through global markets as investors flocked to safe-haven assets like the yen and Swiss franc.

Trump’s highly anticipated announcement introduced a 10% baseline tariff on all imports to the U.S., with higher duties targeting several major trading partners. These tariffs, which will take effect on April 9, are set to affect around 60 countries, escalating the trade conflict Trump initiated upon his return to the White House. There are concerns that this could spark a global economic slowdown.

Trump had previously imposed tariffs on aluminum, steel, and autos, along with increased duties on Chinese goods. The new tariff measures are further stoking fears of a full-blown trade war, which has sent global stock markets tumbling.

"The markets are in risk-off mode, anticipating slower global economic growth," said Kyle Rodda, senior financial market analyst at Capital.com. He added that investors are keen to understand whether there is room for renegotiating the tariffs or if additional trade restrictions could follow.

The Australian dollar, which is sensitive to global trade dynamics, dropped by 0.4% to $0.6274, and the New Zealand dollar fell by 0.12% to $0.5738. Meanwhile, traditional safe-haven currencies saw gains: the Japanese yen rose nearly 1% to 147.99 per dollar, and the Swiss franc strengthened to 0.87815 per dollar.

John Hardy, chief macro strategist at Saxo Bank, noted that safe-haven trades like the yen and U.S. Treasuries are likely to continue gaining traction. Benchmark 10-year Treasury yields fell to a five-month low of 4.04%, as investors prepared for slower U.S. growth, with interest rate futures reflecting an increased likelihood of rate cuts in the near future.

Concerns about the impact of the escalating trade war and weaker-than-expected U.S. economic data have sparked recession fears, weakening the dollar. As the U.S. faces potential retaliation from its trading partners, the dollar index fell to 103.13, its lowest level since mid-October.

In contrast, the euro surged by 0.63% to $1.091625 after the tariff announcement, with the British pound rising 0.42% to $1.30655. Rodrigo Catril, senior currency strategist at National Australia Bank, suggested that the euro’s resilience likely stems from Europe’s focus on supporting its economy in response to U.S. tariffs, rather than seeking retaliation.

Asian currencies, however, struggled, with the Chinese yuan falling to its weakest level against the dollar since mid-February. The yuan's offshore counterpart also dropped to a one-month low. Other Asian currencies, including Malaysia's ringgit, South Korea's won, and the Thai baht, weakened against the dollar.

Ray Sharma-Ong from Aberdeen Investments explained that Asia is bearing the brunt of the tariffs, especially China, South Korea, and Taiwan, while Latin American countries face relatively smaller increases.

The Mexican peso and Canadian dollar remained relatively stable, as they are already facing significant tariffs and were not impacted by the new measures.

Paraphrasing text from "Reuters" all rights reserved by the original author