Dollar Falls on Concern Over Tariffs, US Economy
The dollar fell, extending recent losses, on concern over the impact of higher tariffs on the US economy and the risk of a widening fiscal deficit.
Bloomberg’s gauge of the greenback slipped for a third day, heading for its lowest close since July 2023, on weak demand for US assets. An index of Asian currencies climbed toward the highest level since October, with the Taiwan dollar advancing for a sixth day. Equity-index futures for the S&P 500 and Nasdaq 100 jumped 0.9%, holding their gains from a Monday holiday.
The yen rose as much as 0.5% after Bank of Japan Governor Kazuo Ueda indicated his intention to keep raising interest rates if the economy improves. Treasuries edged higher with the 10-year yield falling two basis points. Japan’s 40-year bonds rose ahead of a bond auction Wednesday. Asian shares swung between gains and losses.
President Donald Trump’s tariff threats and the risk of a widening US fiscal deficit are showing up most clearly in the dollar, diminishing the appeal of the currency. Hedge funds, asset managers and other speculative traders continued to bet against the currency with some of the angst coming from Trump’s proposed tax bill, which is expected to increase the federal deficit by hundreds of billions of dollars.
“Any further tariff news could inject more volatility into currency markets and pull the dollar down,” Kristina Clifton, a senior economist and currency strategist at Commonwealth Bank of Australia, wrote in a note.
The dollar gauge has fallen more than 7% this year and is set to wipe out all of its gains from 2024, when the index rose the most since 2015. Investor demand for dollars is fading amid jitters over tariffs and concern over the US government’s finances spurred by plans to extend tax cuts implemented by Trump in his first term.
“In a way, all roads have led to a weaker dollar,” Chris Weston, head of research at Pepperstone Group, wrote in a note. “Higher perceived US deficits have raised concerns about increased future Treasury issuance, pushing up term premium and seeing people migrate away from the dollar.”
China’s central bank asked its major lenders to raise the share of yuan when facilitating cross-border trade, in its latest push for the use of the currency as the world grapples with the onslaught of tariffs by the US.
Trump’s plan to bring more factories back to the US has President Xi Jinping’s government also considering options to boost production of high-end technological goods.
A key event this week will be Nvidia Corp.’s results on Wednesday. The chip-making giant is seen as a bellwether for so called growth stocks and the sustainability of the artificial intelligence boom. Its outlook will be crucial given macro risks and tariff uncertainty.
Investors are also gearing up for the Federal Reserve’s preferred inflation measure, the US personal consumption expenditures price index excluding food and energy, which will be released Friday. The April reading is forecast to rise 0.1% based on consensus expectations.
Source: Bloomberg
