Dollar Drops to Fresh Low of Year as Tariff Saga Continues
The dollar fell for a fifth day as traders shrugged off a suspension of certain electronics tariffs and after President Donald Trump downplayed his exemption for the technology sector.
The Bloomberg Dollar Spot Index fell as much as 0.4% on Monday, after falling 2.4% last week amid rising trade tensions with China and concerns that U.S. growth will slow. The gauge has now fallen nearly 6% this year and is at its lowest since October.
The dollar’s decline continued after Trump said Sunday he would still impose tariffs on mobile phones, computers and popular consumer electronics, dismissing the previous suspension as a procedural step in his efforts to overhaul U.S. trade. “NOTHING is ‘off the hook,’” the president said in a social media post as trading began in Asia. “For the U.S. dollar to strengthen sustainably, a swift peaceful resolution of the trade war is needed before long-term damage is done to the U.S. economy,” said Dane Cekov, senior currency and macro strategist at Sparebank 1 Markets AS in Oslo. “The U.S. dollar will continue to weaken in the coming months as the impact of Trump’s tariffs shows up in concrete data such as consumption, inflation and labor market figures.” Nearly 80% of respondents to a Bloomberg survey expect the dollar to weaken further over the next month, the largest share of pessimists since the survey began in 2022.
A gauge of the greenback’s volatility remained near a two-year high, while speculative traders added to short positions in the U.S. currency in the week to April 8, data from the Commodity Futures Trading Commission showed.
Federal Reserve Bank of Minneapolis President Neel Kashkari on Sunday downplayed expectations that the central bank would step in to support financial markets after his Boston counterpart Susan Collins suggested that was a possibility.
“Investors in the U.S. and around the world are trying to determine what the new normal is in America” and the Fed has “zero ability to influence that,” Kashkari said. Strategists at the biggest Wall Street banks see the potential for further weakness in the U.S. currency as the impact of Trump’s tariffs works through the economy and markets.
JPMorgan Chase & Co. analysts suggested investors remain bearish on the dollar, especially against the yen and euro, as there is still a significant chance of a U.S. recession. Mizuho Bank Ltd. anticipates the dollar could fall another 5% on a trade-weighted basis before recovering based on what happened in 2017-18 and the pandemic. “The design and implementation of these tariffs should be currency-negative as they have contributed to the erosion of consumer and business confidence,” Goldman Sachs Group Inc. analysts including Kamakshya Trivedi wrote in a note.
“If the tariffs weigh on U.S. corporate profit margins and real incomes of U.S. consumers, as we expect they will, they could erode that distinctiveness and, in turn, undermine a key pillar of the dollar’s strength,” they said.
Demand for hedges against potential dollar declines has surged to a five-year high as the Trump administration’s tariff policies threaten to undermine the distinctiveness of the U.S. economy.
An index measuring three-month risk reversals — or the spread between call and put options — on the dollar against 12 major currencies has fallen to its lowest level since the depths of the global pandemic in March 2020, according to data compiled by Bloomberg.
Source: Bloomberg
