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The dollar became the latest victim of market turmoil this week, as a worsening global trade war threatens to derail US economic growth.
Bloomberg’s gauge of the greenback’s strength fell to a fresh six-month low on April 11, after China raised tariffs on all U.S. goods from 84% to 125%, effective April 12.
Traders turned less bullish for the first time in five years as trade tensions between the world's two largest economies continued to escalate.
Safe havens such as the Japanese yen, Swiss franc and gold have benefited from the outflows. The euro rose to its strongest level in three years, heading for its biggest gain since 2009.
The dollar is under threat, said Christopher Wong, a foreign exchange strategist at Oversea-Chinese Banking Corp.
He added that doubts are growing about the greenback's reserve currency status due to factors including the fading of America's special status and ballooning US debt.
Traders are not only losing faith in the long-term outlook for the dollar, they are doing so at a record pace. The one-year risk-reversal options index, a key gauge of demand for long versus short positions in the greenback against other major currencies, flipped to favoring the dollar for the first time in five years.
April 11’s price action capped another volatile week for global markets, as President Donald Trump’s rapidly shifting trade policies left investors scrambling for direction.
The dollar posted its biggest drop in more than two years on April 10 amid growing expectations that the US Federal Reserve will have to lower borrowing costs to counter the impact of tariffs.
Other U.S. assets also suffered. The S&P 500 ended down 3.5% on April 10, while long-term U.S. Treasurys fell sharply. Overnight interest rate swaps have priced in the possibility of a 96 basis point (0.96 percentage point) rate cut by the Fed this year.
Safe havens have seen a surge in demand as investors seek high-quality assets.
The yen rose 1.6% to 142.18 yen per dollar on April 11, its strongest level since September 2024.
The Swiss franc jumped to a high of 0.8113 francs per dollar, a level not seen since early 2015, while gold rose to a new record above $3,200 an ounce.
The euro climbed to $1.1473 an ounce, its highest since February 2022. The move reflected emerging haven-like momentum, bolstered by Germany’s historic suspension of its “debt brake” rule last month.
The rapidly deteriorating outlook for the US economy is a fundamental shift from earlier expectations that Mr Trump’s return to the White House would usher in an era of lower taxes, faster growth and a stronger dollar.
Traders are now watching China's response after the White House clarified that US tariffs on China have increased to 145%. There is also uncertainty about what happens after a 90-day pause on higher tariffs imposed on dozens of other countries ends.
The wave of withdrawals from US assets is becoming a game changer for currency volatility.
The cost of hedging against major exchange rate volatility is rising, with euro volatility reaching its highest level since 2020 and Swiss franc hitting a high not seen since 2016.
TB (summary)