**Washington**: The dollar index dropped by 1.40% as concerns over the escalating US-China trade war intensified, leading to fears of stagflation. Tariffs have increased on both sides, prompting significant market shifts and a rise in safe-haven investments, particularly in gold and silver.
The dollar index saw a notable decline of 1.40% today, primarily influenced by rising concerns surrounding the ongoing US-China trade war. This escalation has led to fears that economic repercussions may result in stagflation. On Wednesday, the United States increased tariffs on Chinese imports to 125%, up from a previous rate of 104%. In retaliation, China imposed tariffs of 84% on American goods.
The dollar’s decrease also stems from a crisis of confidence as the United States restructures its trade relationships. This reconfiguration has diminished the dollar’s status as the world’s reserve currency, prompting some foreign investors to liquidate their dollar-denominated assets. The currency continued its downward trajectory following the release of March’s consumer price index (CPI), which showed a weaker than anticipated year-on-year rise of 2.4%, below the expected 2.5%. This figure marked the smallest increase in six months. The core CPI, excluding food and energy, experienced a year-on-year increase of 2.8%, also falling short of forecasts of 3.0% and representing the lowest rise in four years.
In terms of labour market data, the weekly initial unemployment claims rose by 4,000 to a total of 223,000, which aligned with market expectations. Meanwhile, continuing claims decreased by 43,000 to 1.850 million, signalling a labour market performance that was stronger than predictions.
Commenting on the current economic climate, Kansas City Fed President Esther George underscored her commitment to combating inflation, stating she would “prioritize reining in inflation” should the Federal Reserve face a choice between its goals of price stability and full employment. Dallas Fed President Lorie Logan added that it is crucial to prevent any tariff-related price increases from leading to persistent inflation.
Market forecasts indicate a 25% chance of a 25 basis point rate cut during the Federal Open Market Committee meeting scheduled for May 6-7, a decrease from a 30% likelihood the previous week.
The euro gained 1.66% today against the dollar, buoyed by the dollar’s descent. It also received a boost from President Trump’s decision to suspend reciprocal tariffs, which may help avert a recession in the Eurozone. This shift has altered perceptions regarding the necessity for the European Central Bank (ECB) to continue easing monetary policy, with swaps indicating a 93% discount chance for a 25 basis point rate cut during the ECB’s meeting on April 17.
The Japanese yen also appreciated significantly, rising by 1.95% today after the country experienced a larger-than-expected increase in producer prices, which rose by 0.4% month-on-month and 4.2% year-on-year, surpassing forecasts. This trend combined with lower Treasury yields has continued to support the yen, along with heightened demand for safe-haven currencies as tensions escalate between the US and China.
In the commodities market, precious metals surged, with June gold rising by $75.20, or 2.44%, and May silver increasing by $0.365, or 1.20%. This upswing in prices is attributed to the dollar’s decline and increased safe-haven demand spurred by the trade conflict. Furthermore, geopolitical uncertainties in the Middle East have added to safe-haven purchases, particularly following the collapse of the ceasefire between Israel and Hamas and US threats of military action against Yemen’s Houthi rebels. Notably, fund investments into gold have surged, with long positions in exchange-traded funds reaching a one-and-a-half year high on Wednesday.
As of the publication date, the author, Rich Asplund, did not hold any positions in the securities mentioned, and all provided data and information aim to serve informational purposes only.
Source: Noah Wire Services
Subscribe to Industry Updates
