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The U.S. dollar fell sharply on Thursday, surrendering gains from the previous session as concerns over a prolonged trade war with China and its potential to tip the U.S. economy into a recession continued to rattle financial markets.
As of 05:25 ET (09:25 GMT), the U.S. Dollar Index (DXY)—which tracks the greenback against a basket of six major currencies—was down 0.6% at 101.959, lingering near a six-month low, despite a brief overnight rebound.
Dollar Pressured by Tariff Fallout and Policy Uncertainty
The dollar’s weakness reflects growing market anxiety over President Donald Trump’s aggressive trade strategy, which included hiking tariffs on Chinese imports to an unprecedented 125% on Wednesday. While the President later granted a 90-day delay on imposing reciprocal tariffs for most U.S. trading partners, China was notably excluded from that reprieve.
Adding to the pressure, ECB policymaker Francois Villeroy de Galhau criticized Trump’s policies, saying they had “eroded global confidence in the U.S. dollar”, further underlining growing skepticism abroad.
Market Eyes U.S. CPI for Inflation Clues
Traders are now awaiting the release of the U.S. Consumer Price Index (CPI) for March, which could offer insights into inflationary pressures prior to the implementation—and subsequent delay—of many of Trump’s tariffs.
Economist expectations:
- Headline CPI (YoY): 2.5% (vs. 2.8% in February)
- Headline CPI (MoM): 0.1% (vs. 0.2%)
- Core CPI (YoY): 3.0% (vs. 3.1%)
- Core CPI (MoM): 0.3% (vs. 0.2%)
A cooler-than-expected reading could boost expectations for Federal Reserve interest rate cuts, further pressuring the dollar.
Euro and Pound Climb as Dollar Weakens
- EUR/USD climbed 0.8% to 1.1040, supported by the White House’s 90-day tariff pause on the EU. The European Commission said it would take time to evaluate the announcement, while EU member states have already voted in favor of possible countermeasures.
- GBP/USD advanced 0.4% to 1.2865, helped by broad dollar softness. However, a selloff in U.K. gilts (government bonds) could temper the pound’s momentum moving forward.
Yen Strengthens on Hawkish BOJ Tone
In Asia, the Japanese yen strengthened sharply:
- USD/JPY dropped 1% to 146.30, bolstered by a stronger-than-expected Japanese PPI (Producer Price Index) for March.
Speculation grew that the Bank of Japan could continue hiking rates, after Governor Kazuo Ueda reaffirmed that policy normalization was still on track, despite global uncertainty.
Chinese Yuan Edges Lower Amid Trade War Jitters
- USD/CNY slipped 0.1% to 7.3418, pulling back slightly after hitting a 17-year high of 7.3511 yuan on Wednesday.
The ongoing U.S.-China tariff standoff continues to cloud the yuan’s outlook, with both governments digging in and showing little inclination to de-escalate. China has vowed to “fight to the end,” adding further strain to bilateral relations.
Outlook
The dollar remains under pressure as traders assess the long-term economic risks posed by the U.S. trade agenda, especially in light of softer inflation expectations and potential policy shifts from the Federal Reserve. With sentiment fragile, any further escalation in U.S.-China tensions could deepen risk aversion—potentially benefiting safe-haven currencies like the yen and Swiss franc, while continuing to weigh on the greenback.
