Dollar sinks as investors grapple with tariff aftermath

By Laura Matthews

(Reuters) - The U.S. dollar sank against major peers on Thursday, dropping to six-month lows against the euro, and the safe haven yen and Swiss franc, as investors grappled with how U.S. President Donald Trump's far-reaching tariffs will impact global trade and economic growth.

The harsher-than-expected tariffs announcement sent shockwaves through markets, sinking global stocks and sending investors into the safety of less risky currencies, bonds and gold, fearing that a full-blown trade dispute could trigger a sharp global economic slowdown and fuel inflation.

Trump said he would impose a 10% baseline tariff on all imports to the United States and higher duties on some of the country's biggest trading partners.

"What the FX market is telling you, (is) that U.S. growth is going to suffer, and that U.S.-built systems are falling apart in global trade," said Adam Button, chief currency analyst, ForexLive.

"The U.S. dollar was the most crowded trade in the world coming into the year. And today, the knee-jerk reaction to tariffs is to sell everything. Any trade that was crowded is thinning out, and that includes the dollar."

The dollar, meanwhile, showed little reaction to weaker-than-expected data from the Institute for Supply Management (ISM) on Thursday, showing the U.S. services sector slowed to a nine-month low in March, amid uncertainty caused by import tariffs.

That report adds to downbeat consumer and business surveys, as well as consumer spending and inflation reports that raised stagflation concerns.

Meanwhile, the number of Americans filing new applications for unemployment benefits fell last week, showing continued stability in the labor market.

As markets digest the tariff fallout, they are looking to Friday's non-farm payrolls report for further signals about how the labor market is holding up and the possible path of the Federal Reserve interest-rate policy.

They are also eyeing Fed Chairman Jerome Powell's speech on Friday, as a big risk if he is more hawkish than expected.

"They have all been saying, 'we have less confidence that inflation is coming down'. Now you take away the rate cuts that are in the market, (it) can really get ugly fast," said Button.

The euro, hitting a six-month high, was last up 1.74% at $1.1037, and saw its biggest intraday advance since November 2022. The dollar fell 1.95% against the Japanese yen to 146.445 yen, and sank 2.35% on the Swiss franc to 0.8608 franc.

Both safe havens were at their strongest on the greenback in six months.

Britain's pound was up 0.66% at $1.3093.

CRISIS OF CONFIDENCE

Deutsche Bank warned on Thursday of the risk of a crisis of confidence in the U.S. dollar, saying major shifts in capital flow allocations could take over from currency fundamentals and currency moves become disorderly.

Trump has already imposed tariffs on aluminum, steel and autos, and increased duties on all goods from China.

Investors are worried that some U.S. trading partners could retaliate with measures of their own, leading to higher prices.

EU chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures if talks with Washington failed.

"I don't think we're seeing any threats of a trade war, but are we going to see some of these U.S. trade partners, that historically had good relations, start to diversify away from the U.S., and maybe look at some other trading counterparts," said David Song, senior strategist, Forex.com.

"I think this is where are seeing the sort of diversification away from U.S. dollar, at least over the near term, because of the uncertainty."

China's onshore yuan slid to its weakest level against the dollar since mid-February. China's offshore yuan also hit a two-month low against the dollar, but later steadied. The dollar was last down 0.2% versus the yuan at 7.2791.

The Mexican peso and Canadian dollar strengthened, with the U.S. dollar more than 1% weaker against both.

Canada and Mexico, the two largest U.S. trading partners, already face 25% tariffs on many goods and will not face additional levies from Wednesday's announcement.

Currency              

bid

prices at

3 April​

07:14

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 102.1 103.16 -1.02% -5.89% 103.38 101.

index 26

Euro/Doll 1.1031 1.0848 1.68% 6.55% $1.1147 $1.0

ar 805

Dollar/Ye 146.49 149.43 -2.03% -6.96% 149 145.

n 355

Euro/Yen 161.6​ 162.06 -0.28% -0.99% 162.98 160.

14

Dollar/Sw 0.8604 0.8822 -2.46% -5.18% 0.8831 0.85

iss 47

Sterling/ 1.3089 1.3011 0.64% 4.69% $1.3207 $1.2

Dollar 971​

Dollar/Ca 1.4079 1.423 -1.05% -2.08% 1.4319 1.40

nadian 28

Aussie/Do 0.6333 0.63 0.56% 2.38% $0.639 $0.6

llar 226

Euro/Swis 0.9491 0.957 -0.83% 1.02% 0.9577 0.94

s 89

Euro/Ster 0.8427 0.8339 1.02% 1.86% 0.8448 0.83

ling 24

NZ 0.5795 0.5745 0.91% 3.61% $0.5852 0.56

Dollar/Do 82

llar

Dollar/No 10.3331​ 10.4019 -0.66% -9.09% 10.4666 10.1

rway 931

Euro/Norw 11.3986 11.2882 0.98% -3.15% 11.446 11.2

ay 804

Dollar/Sw 9.792 9.8936 -1.03% -11.12% 9.9502 9.60

eden 47

Euro/Swed 10.8038 10.7452 0.55% -5.78% 10.8065 10.6

en 662

(Additional reporting by Ankur Banerjee and Rae Wee in Singapore; Yadarisa Shabong in Bengaluru and Paolo Laudani in Gdansk; Editing by Bernadette Baum, Marguerita Choy and Sandra Maler)