U.S. dollar melts like Butter under hot Knife
President Donald Trump’s tariffs hike against China on Wednesday caused the haven currency to plummet, escalating concerns about a prolonged trade war and a legal battle.
The Dollar Index, which measures the U.S. dollar’s strength against six major currencies, fell more than 40 basis points to 102.277 after reaching its lowest levels since September 2024.
In retaliation for China’s imposition of 34 percent retaliatory tariffs against the U.S. last week, President Trump signed an order on Tuesday imposing an additional 50 percent tariff on China, bringing the total amount of U.S. tariffs against the country to 104 percent.
The dollar was under pressure due to concerns about a potential U.S. economic downturn. The United States Central Bank might cut interest rates further.
After initially indicating 92 basis points of cuts this year, Fed fund futures surged Wednesday to suggest around 111 basis points.
Markets believe that the lack of quick alternatives for some Chinese goods makes the U.S. even more vulnerable to inflation and recession, contributing to the dollar’s struggles due to the additional tariffs on China.
Meanwhile, the negative impact of higher tariffs on Chinese exporters is diminishing,” ING analysts wrote in a note.
Additionally, Goldman Sachs analysts noted that markets might still be underestimating the likelihood of a full-blown U.S. recession following the steep increase in tariffs on Chinese goods. “We believe there is a high probability.
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