The Dollar tumbled against safe-haven currencies and the Euro on Wednesday, as investor concerns over the economic fallout from US tariffs rattled global equity markets.
Key stock indexes plunged, and a sharp selloff in US Treasuries raised alarms that foreign investors might be pulling out of American assets.
President Donald Trump's “reciprocal” tariffs targeting numerous countries came into force on Wednesday, including steep 104% duties on Chinese imports, escalating the ongoing global trade conflict.
China issued a white paper outlining its trade and economic relationship with the United States, reaffirming its intention to implement countermeasures in response to the increased tariffs on Chinese products, Reuters reports.
“One of the reasons why the Dollar is suffering the most from additional tariffs on China is that markets feel the lack of immediate substitutes for some Chinese products means even greater inflationary and recessionary risks for the US,” said Francesco Pesole, ING forex strategist, adding that the “'sell America' scenario is becoming tangible again.”
The Dollar fell 0.8% against the Japanese Yen, reaching 145.09, and declined 0.4% against the Swiss Franc after touching a new six-month low of 0.8379.
Elsewhere, the Euro surged, boosted by reports that Germany's conservative bloc had reached a coalition agreement with the Social Democrats, easing political uncertainty in the EU’s largest economy.
The single currency strengthened by 0.8% to $1.1044, edging closer to last week’s high of $1.1147.
However, Citi analysts revised down their eurozone growth outlook, cutting their 2025 forecast from 1.0% to 0.8% and the 2026 projection from 1.3% to 0.6%. They also trimmed their inflation estimates for the next three years, with the 2026 Harmonised Index of Consumer Prices (HICP) now expected to average 1.6%.
Meanwhile, European Union member states are set to approve the bloc’s first countermeasures against US tariffs on Wednesday.
Markets were now pricing in 104 basis points of interest rate cuts by the Federal Reserve this year, up slightly from around 100 basis points the previous day.
Forecasts for European Central Bank monetary easing have risen to 77 basis points, up from around 70 basis points on Tuesday. Markets are now fully pricing in a 25-basis point rate cut next week, compared to a 90% probability previously.
The Dollar fell 0.6% against the offshore Yuan to 7.38, after previously hitting a record high of 7.4288. Market attention is now focused on China's central bank to see if it signals further easing at its daily reference rate.
“Weakness in the Renminbi continues to reflect building speculation over the potential for bigger devaluation in response to the intensifying trade war between the US and China,” according to Lee Hardman, senior currency analyst at MUFG.