Dollar Traders Brace for Further Losses After Currency Drops 1.5%
Traders are bracing for further dollar weakness after President Donald Trump’s massive trade tariffs weakened the U.S. currency the most in two-and-a-half years.
Options data showed investors were bearish on the dollar in the coming month for the first time since September. The Bloomberg Dollar Spot Index fell as much as 1.5% on Thursday and the dollar fell against all G-10 currencies, dropping about 2% against the yen and the Swiss franc. The dollar fell more than 1% against the euro and the pound, and fell to its weakest against the Canadian dollar since mid-December.
“The dollar has been the biggest loser from last night,” Sonja Marten, head of monetary policy and foreign exchange research at DZ Bank AB in Frankfurt, said in an interview with Bloomberg TV. “People are now focused on the economic impact that these tariffs could have on the U.S. itself.”
The higher-than-expected tariffs threaten to raise prices on trillions of dollars worth of goods imported into the U.S. each year. For now, investors are betting that the levies will stifle the U.S. economy, rather than reignite inflation, and that’s fueling bets on deeper interest-rate cuts from the Federal Reserve—adding depreciating pressure on the U.S. dollar.
Hedge funds have increased bearish bets on the dollar, particularly against the yen and the euro, while also predicting higher volatility through the end of the year, according to currency traders familiar with the transactions who asked not to be identified because they weren’t authorized to speak publicly.
“The market is betting against the Fed here, saying that weaker U.S. growth — especially if accompanied by rising unemployment — will trump a rate-related pick-up in inflation,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd.
Overnight index swaps signaled an 80% chance of a Fed rate cut in June, up from 76% on Wednesday. The 10-year Treasury yield fell to near 4%.
If the decline in U.S. yields is sustained, “there’s a lot more U.S. dollar weakness to come in the coming months,” Attrill added.
Source: Bloomberg
