(3 April 2025 – United States) The US Dollar (USD) fell to six-month lows against the EUR, JPY and CHF as investors digested sweeping tariffs implemented by US President Donald Trump on all trading partners.
Investors are specifically concerned about how the aggressively protectionist measures will impact global trade and economic growth as consumers are encumbered with rising costs passed on to them in the form of higher prices by importers.
Deutsche Bank warned of the risk of a crisis of confidence in the greenback, stating that major shifts in capital flow allocations could take over from currency fundamentals and currency moves become disorderly.
Eclipsing historic effective tariff rate (ETR) highs last witnessed during the McKinley administration in the late 1800s and Great Depression era of the early 1930s, President Trump’s tariffs announcement upended financial markets.
Reciprocal action by hardest-hit Asian and European countries could trigger a full-blown trade war resulting in a sharp global economic slowdown with risk of stagflation in the US rising sharply.
US corporates are facing difficulties responding to increased currency volatility as internal restrictions around hedging programmes make it difficult for them to react quickly to the shifting strength of the dollar.
Heightened FX volatility, driven in particular by President Donald Trump’s chaotic tariff announcements, has seen the dollar weaken and made it difficult for corporates to forecast future cashflows from foreign earnings or imports.
“What the FX market is telling you, is that US growth is going to suffer, and that US-built systems are falling apart in global trade. The US dollar was the most crowded trade in the world coming into the year. And today, the knee-jerk reaction to tariffs is to sell everything. Any trade that was crowded is thinning out, and that includes the dollar” commented ForexLive Chief Currency Analyst, Adam Button.