Last Friday, the dollar fell across the board in the foreign exchange market due to U.S. President Trump's renewed tough trade signals, suggesting imposing tariffs of up to 50% on EU goods starting June 1, leading to market concerns about global economic and trade prospects. Consequently, investors sold off the dollar, shifting towards safe-haven assets.
Trump stated on social media that trade talks with the EU were "making no progress" and criticized the EU as "very difficult to deal with." He also threatened to impose a 25% import tariff on smartphones produced by Apple, Samsung, and others overseas, causing a strong market reaction and heightened global risk aversion.
As a result of these developments, the dollar-yen exchange rate fell by 1% to 142.48, reaching its lowest level in two weeks. For the week, the dollar-yen decreased by 2.2%, marking the largest weekly drop since early April.
Meanwhile, the euro showed strong performance, rising 0.8% against the dollar to $1.1363, hitting a two-week high and recording its largest weekly gain in six weeks. The dollar index fell by 0.8%, reaching a nearly one-month low of 99.09, with a weekly decline of 1.9%, marking its worst performance since early April.
Furthermore, the pound also benefited from the dollar's weakness. The pound rose 0.9% against the dollar to $1.3533, at one point reaching a high not seen in over three years. It climbed 1% for the week, its largest weekly gain in five weeks.
Safe-haven currency the yen also found support. Previously, Japan announced that its core annual inflation rate for April reached a more than two-year high, increasing expectations of another rate hike in Japan this year. The increase in Japanese inflation combined with Trump's pressure on global trade structures further boosted demand for the yen.
Simultaneously, the uncertainty of U.S. fiscal policy became another factor weighing on the dollar. The U.S. Treasury Secretary stated that Trump's remarks expressed dissatisfaction with the slow progress of EU negotiations. The market is also closely watching the latest U.S. tax bill, which has narrowly passed in the House and is expected to spark ongoing debate in the Senate, further increasing policy uncertainty.
In addition, the U.S.'s massive $36 trillion debt has also drawn market attention. Moody's previously downgraded the U.S. debt rating, raising concerns about the sustainability of U.S. finances, which also pressured the dollar.
In summary, multiple factors including Trump's high-profile tariff threats, U.S. fiscal risks, and heightened global risk aversion have collectively contributed to the recent significant decline of the dollar. The foreign exchange market may continue to be dominated by political and economic uncertainties in the short term.
