The euro and Japanese yen surged against the U.S. dollar on Thursday as investors assessed the far-reaching consequences of President Donald Trump’s sweeping tariffs on global trade and economic growth.
With concerns mounting over a potential trade war, investors flocked to safe-haven currencies like the yen and Swiss franc, driving the dollar to its lowest level in six months against both.
“The main conclusion is that the US is less concerned than it has traditionally been about short-term economic growth,” said Adam Button, chief currency analyst at Forex Live. “The market favors investing in the fastest-growing sectors, and this change in US policy has made investors nervous.”
Market Turmoil and Economic Uncertainty
The widely anticipated tariff announcement sent shockwaves through financial markets, causing global stocks to plummet. Investors turned to bonds and gold as safe-haven assets, fearing that an escalating trade dispute could lead to a sharp global economic slowdown and rising inflation.
Trump’s new policy includes a 10% baseline tariff on all imports to the U.S., with higher duties imposed on key trading partners. Meanwhile, the dollar showed little reaction to weaker-than-expected data from the Institute for Supply Management, which reported that the U.S. services sector slowed to a nine-month low in March due to uncertainty surrounding trade policy.
Additional economic reports, including consumer and business sentiment surveys, consumer spending, and inflation data, have fueled concerns about stagflation—where slow economic growth coincides with high inflation. However, the labor market remained stable, with new unemployment benefit claims falling last week.
“Current economic data isn’t the focus right now. Investors are looking ahead to how the global trading system will be reshaped and what lasting impact these tariffs will have,” Button added.
Currency Reactions and Investor Moves
The euro hit a six-month high, rising 2.4% to $1.1109, marking its biggest single-day gain since December 2015. The dollar weakened 2.6% against the yen to 145.45 and dropped 3.03% against the Swiss franc to 0.8554, both at their strongest levels against the greenback in six months. The British pound also climbed 1.11% to $1.3155.
Concerns Over Dollar Stability
Deutsche Bank issued a warning on Thursday about a potential crisis of confidence in the U.S. dollar, citing concerns that shifts in capital flows could lead to disorderly currency movements. Trump has already imposed tariffs on aluminum, steel, and autos, along with increased duties on all Chinese imports.
David Song, senior strategist at Forex.com, said, “Trump’s reciprocal tariffs may increase the risk of a US recession, so the dollar’s weakness may continue.” He also said that weak ISM data could prompt the Federal Reserve to ease its restrictive monetary policies.
Global Response and Economic Fallout
Investors fear retaliatory measures from U.S. trading partners, which could further increase consumer prices. European Commission President Ursula von der Leyen called the tariffs a major blow to the global economy and warned that the EU would impose countermeasures if negotiations with Washington failed.
China’s onshore yuan fell to its weakest level against the dollar since mid-February, while its offshore counterpart hit a two-month low before stabilizing. The dollar was last down 0.2% against the yuan at 7.2866.
Meanwhile, the Mexican peso and Canadian dollar gained ground, with the U.S. dollar weakening by more than 1% against both currencies. While Canada and Mexico—the two largest U.S. trading partners—were spared additional tariffs in the latest announcement, they still face 25% duties on many goods.
As global markets adjust to the fallout from Trump’s aggressive trade policy, investors and policymakers alike remain on edge, bracing for further volatility in the weeks ahead.
