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On Thursday, the US dollar experienced a significant decline, accompanied by a drop in global stock markets, as investors adjusted to the potential negative impact on the US economy from the ongoing trade war under President Donald Trump. The dollar decreased by 2.1% against a currency basket of trading partners, marking its worst day since 2022. This was due to concerns about diminished growth following the implementation of extensive tariffs on US imports, prompting expectations for quicker interest rate cuts.
Francesco Pesole, a foreign exchange strategist at ING, commented that investors are targeting the dollar amid worries that the tariffs will disproportionately harm the US economy. Pesole also highlighted the risk that the US might suffer from reduced revenue coupled with increased uncertainty and weakened consumer sentiment, while others might negotiate some of the tariff impacts.
These market responses followed the White House’s announcement on Wednesday of substantial 10% tariffs on nearly all US imports, along with 20% levies on EU goods and 34% on Chinese goods, in addition to previously announced tariffs. European and Asian markets, particularly companies focused on exports, led the stock sell-off, and US stock futures also fell sharply in response to Trump’s extensive challenge to the global trade framework.
In Europe, the Stoxx Europe 600 index fell by 1.9% in early trading, with the declines led by consumer cyclicals and financial stocks, as the economic consequences of tariffs on European nations and their retaliatory measures were considered. Zhikai Chen, head of global emerging market equities at BNP Paribas Asset Management, expressed that the situation was worse than anticipated.
Retailers Adidas and Puma saw drops of 10% and 9% respectively, Standard Chartered experienced an 8% loss, and Volvo decreased by nearly 10%. On Wall Street, S&P 500 futures indicated a 3.3% decline, contributing further to a market already burdened by Trump’s tariff threats and a downturn in the tech sector.
US bank stocks were also set to open lower, with Goldman Sachs down by 4% in pre-market trading and JPMorgan by over 3%. Chipmaker Nvidia saw a nearly 5% decrease as technology stocks continued their downturn. Stephen Jen, CEO of asset manager Eurizon SLJ, described the trade war as disorderly, suggesting its impact would result in stagflation for the US and globally, with financial markets needing to adjust until some tariffs are eased.
Concerns over US institutional strength were indicated by the dollar’s unusual failure to act as a safe haven in times of stress, highlighted by George Saravelos at Deutsche Bank, who remarked on the worries about policy credibility undermining the dollar. Meanwhile, the euro increased by 2.1% against the dollar, marking its most significant one-day rise since 2022.
Other global stock markets also saw declines, with the UK’s FTSE 100 down by 1.3%, Japan’s Topix index closing 3.1% lower, and Hong Kong’s Hang Seng index dropping by 1.5%. Vietnam’s stock index fell nearly 7%, making it the worst-performing primary index tracked by Bloomberg, as it faced a 46% tariff, one of the largest tariffs imposed.
In the currency markets, the Japanese yen rose 1.9% as traders sought security amidst the dollar’s decline. Government bonds saw a surge as investors pursued safer assets, with ten-year US Treasury yields decreasing by 0.13 percentage points to 4.06% as bond prices rose.
Market participants are now anticipating three or four quarter-point interest rate cuts from the Federal Reserve to support the US economy, increased from previous expectations of three cuts. Mark Haefele, chief investment officer at UBS Global Wealth Management, suggested that even if tariffs are reduced by the end of the year, the immediate impact and uncertainty could slow down the US economy in the near term, reducing the projected full-year 2025 growth to around or below 1%.
Commodities reacted with the gold price retracting to $3,108 a troy ounce after reaching a record high in Asian trading overnight. Economically sensitive commodities, such as Brent crude oil, declined by 4%. Jim Reid from Deutsche Bank noted that investors may have been overly optimistic regarding earlier comments from Treasury Secretary Scott Bessent about capping the initial levies. Ding Shuang, chief greater China economist at Standard Chartered, described the tariff increase as more significant than anticipated, even for China.
