Dollar Falls to Three-Month Low as Trade War Fears Weigh, Euro Gains on Stimulus Hopes

The U.S. dollar slipped further on Wednesday, reaching a three-month low as concerns mounted that a trade war initiated by President Donald Trump could slow growth in the world’s largest economy. At 04:00 ET (09:00 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was down 0.6% to 105.060—its weakest level since early December.

Trade war concerns have intensified following the implementation of tariffs by Trump against China, Canada, and Mexico. The possibility of further tariff hikes was underscored by Trump’s remarks during an address to Congress, in which he warned that these measures could cause a “little disturbance.” The looming threat of an all-out trade war, combined with deteriorating U.S. consumer confidence—which recently fell to a 15-month low—has spurred fears of a significant economic slowdown. The Atlanta Fed’s GDPNow model now forecasts annualized growth of -2.8% for the current quarter, a sharp reversal from last week’s 2.3% reading.

In contrast, the euro strengthened, rising 0.6% to 1.0684 against the dollar and reaching a three-month high. This gain comes amid expectations of significant fiscal stimulus across the eurozone. European leaders are anticipating major policy moves, including the unlocking of up to €650 billion in national spending triggered by the European Commission’s activation of escape clauses from the Stability and Growth Pact, alongside additional measures totaling around €800 billion. German policymakers have also signaled a suspension of the debt brake and the potential release of a €500 billion infrastructure fund, all of which are seen as supportive for the region’s economic outlook.

The British pound also benefited from the weakening dollar, with GBP/USD rising 0.4% to 1.2848, its highest level in three months.

In Asia, the Japanese yen appreciated against the dollar, with USD/JPY dropping 0.4% to 149.22. Market participants are betting on continued economic strength in Japan and further interest rate hikes by the Bank of Japan. Meanwhile, the Chinese yuan traded 0.1% lower at 7.2579 per dollar as Beijing is expected to unveil additional stimulus measures. China has maintained a 5% economic growth target for 2025 for the third consecutive year, while also outlining plans for increased fiscal spending and targeted measures to boost private consumption amid trade-related headwinds.

As investors digest these developments, the contrasting currency movements reflect a complex global landscape where trade policy uncertainty and fiscal stimulus efforts continue to drive market sentiment.