Dollar Weakens, Asian Stocks Drop on Tariff Worries
The dollar extended losses after its biggest drop in three years while stocks and bonds sold off as a worsening global trade war eroded already fragile risk appetite.
Asian stock gauges were on track for a third straight week of declines as market relief turned to anxiety after the White House clarified that U.S. tariffs on China would rise to 145%. U.S. Treasury bonds extended this week’s decline. In a sign investors were seeking havens and non-U.S. alternatives, the euro jumped as much as 1.6%, the yen strengthened and gold hit a fresh high. Equity futures for Europe edged up while those for the U.S. were mixed.
Just a day after financial markets cheered President Donald Trump’s decision to delay some of his major tariffs, the selloff reflected skepticism about planned talks with U.S. trading partners and fears of escalating tensions with China. The much-vaunted America-first trade — buying assets that win when the U.S. outperforms the rest of the world — reversed course on concerns that the steepest increase in levies in a century would tip the world’s largest economy into recession.
“President Trump’s repeated changes in tariff stance have dented investor confidence in the U.S. government and economy,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “The selloff in equities, bonds and the U.S. dollar suggests market participants are reallocating their portfolios away from U.S. dollar assets.”
The currency weakness continued into Asian trading on Friday, after the Bloomberg Dollar Spot Index closed down 1.5% in late New York trading on Thursday. Option premiums paid to hedge the dollar against a basket of peers for the next week hit their highest since March 2020, relative to positions for gains.
Even emerging market currencies such as the Korean won and Thai baht gained against the dollar. A gauge of emerging market currencies rose about 0.6%, on pace for its best day since August.
The yen’s gains pushed the Japanese currency to around 143 per dollar on Friday, a level not seen since October. The Swiss franc hit a decade-high.
“So you’re losing money on bonds, you’re losing money on currencies and you’re losing money on equities,” said Alain Bokobza, head of global asset allocation at Societe Generale. “That’s a wake-up call for all global managers that they need to re-diversify their portfolios in what we call a major rotation.”
Shares in China and Hong Kong were mixed on Friday after rising in the previous session on expectations that governments would roll out more economic stimulus. The countries’ top leaders are due to meet in Beijing on Thursday to discuss the measures.
News of higher levies on Chinese goods appeared to outweigh Trump’s signal that the U.S. was close to a first deal on tariffs, without naming any countries. “The Trump administration’s stance has evolved from an all-out trade war against everyone, to a concentrated trade war against China,” said Nicolas Oudin of Gavekal Research. “Most investors believe that China is shooting itself in the foot by retaliating. The view from Beijing is different.
Many in China read the ‘Trump fold’ as a sign of U.S. weakness, and therefore as a validation of China’s decision to escalate.” China is likely to defy expectations from some on Wall Street for a major yuan devaluation against the dollar, opting instead for only moderately managed currency weakness, according to Allan von Mehren, chief strategist at Danske Bank. The country’s daily benchmark yuan exchange rate edged up on Friday, after weakening for six straight sessions, amid a weaker dollar.
As Trump launches an all-out assault on global trade, the status of U.S. Treasury bonds as the world’s safe haven has come under increasing question. Yields, especially on longer-term debt, have surged in recent days while the dollar has fallen.
U.S. government debt continued its selloff from earlier in the week even as a solid selloff in 30-year U.S. Treasury bonds signaled appetite for bonds. On Friday, the 10-year Treasury yield rose as much as six basis points, having gained nine on Thursday.
Source: Bloomberg
