Trump's tariffs suppress economic outlook, and the dollar falls to a three-month low
Due to concerns about the negative impact of U.S. tariffs on the economy, the dollar fell to a three-month low, with a significant decline against the euro. The Bloomberg Dollar Spot Index dropped by as much as 0.6%, and the euro rose to 1.07 against the dollar, reaching a new high since November of last year. The market expects the Federal Reserve to cut interest rates by 71 basis points, which may cause the dollar to lose its safe-haven status. Germany plans to increase defense and infrastructure investments, leading to a rise in the euro and pressure on the dollar
According to Zhitong Finance APP, due to concerns that U.S. tariffs will have a negative impact on the economy, the dollar has fallen to a three-month low, with a particularly noticeable decline against the euro. The Bloomberg Dollar Spot Index fell 0.6% on Wednesday, reaching its lowest level since December 9 of last year. The euro became one of the best-performing currencies after Germany announced plans to increase defense and infrastructure investments, with the euro rising to 1.07 against the dollar, the highest level since November 11 of last year.
The dollar has been on a downward trend this week as the U.S. imposed trade tariffs on Canada and Mexico, heightening concerns that a global trade war will drag down economic growth and force major central banks to cut interest rates further. The swap market indicates that the Federal Reserve will cut rates by 71 basis points by the end of this year, up from an expectation of 66 basis points last Friday.
Dollar index falls to three-month low
Valentin Marinov, global foreign exchange strategy director at Crédit Agricole, stated, "The U.S. economy may slow further, forcing the Federal Reserve to restart its easing cycle in the second half of this year. The Fed may also have to end its quantitative tightening program to accommodate U.S. President Donald Trump's fiscal spending plans. This could undermine the view of the dollar exception."
Meanwhile, the U.S. reduction of European defense deployments has prompted European leaders to quickly formulate plans to strengthen their military capabilities. Germany plans to invest hundreds of billions of euros in defense and infrastructure, a significant shift that has led to a surge in the euro and a plunge in German bonds.
Due to liquidity and political stability, the dollar is typically considered the safest currency in the world, but Deutsche Bank has questioned this. George Saravelos, global foreign exchange strategy director at Deutsche Bank, stated that as global markets adapt to a new geopolitical order, the dollar may lose its traditional safe-haven status.
Kathleen Brooks, head of research at XTB, stated, "The euro is rising, and as the 'Trump effect' fades, the dollar continues to lose its luster."