The U.S. dollar weakened Monday, with uncertainty surrounding the Trump administration’s trade policies shaking investor confidence in the world’s reserve currency.
At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, dropped 0.7% to 99.239, trading near a three-year low.
Dollar falls on trade uncertainty
Late on Friday, the White House announced that smartphones, computers and other electronics would be temporarily exempted from U.S. President Donald Trump’s punishing duties.
That said, Trump did say that this was only temporary, and suggested that he would unveil a tariff rate on imported semiconductors over the next week.
“I think it’s fair, as most do, to call US tariff policy ’chaotic’,” said analysts at ING, in a note. “The market is now bracing for Washington coming after the semiconductor sector and possibly the pharma sector as well this week.”
The dollar’s status as the world’s reserve currency could be under threat as investors begin to doubt the theory of U.S. exceptionalism.
“It does seem as though it was the buy-side driving most of the dollar selling last week. And that’s what CFTC futures data confirmed on Friday, too. DXY did some serious damage to the longer-term charts last week, and we imagine DXY sellers will re-appear in the 100.50/75 area if the near-term bear trend remains dominant,” ING added,
Euro awaits ECB meeting
In Europe, EUR/USD traded 0.4% higher to 1.1400, hovering near Friday’s three-year high as investors flocked to the common currency.
“EUR/USD did some serious damage to the long-term charts last week and broke out of a bear trend which had roughly contained price action since 2008,” said ING.
Attention this week will be on the latest meeting of the European Central Bank, with policymakers having to adjust for renewed economic pressures from trade tensions and a stronger euro.
“The ECB probably won’t like the reality that the trade-weighted euro is surging to multi-decade highs, yet it will also acknowledge its benefit and safe haven properties of the second most liquid currency in the world,” ING added.
GBP/USD traded 0.8% higher to 1.3184, with sterling benefiting from the de-rating of the dollar, with this week seeing a number of important U.K. economic data releases, including the latest unemployment and inflation numbers.
“Both pieces of data present downside risks to sterling,” ING added.
Yen gains from safe haven demand
In Asia, USD/JPY traded 0.4% lower to 142.96, with the Japanese currency remaining an outperformer, trading near its strongest level in six months as demand for safe havens remained relatively high.
USD/CNY traded 0.1% higher to 7.3003, following another weak midpoint fix from the People’s Bank of China. The pair remained close to a 17-year high hit last week.
The PBOC set a weaker midpoint for seven of the past eight sessions, with Beijing seen bringing down the yuan to offset the impact of steep U.S. trade tariffs on the country.
Trade data showed China’s trade surplus ballooned past expectations in March, with exports rising substantially before the imposition of steep U.S. trade tariffs on China.
