The US dollar extended its decline in European trading Thursday, sinking to a six-month low as markets reacted to President Trump’s aggressive new global tariff measures. The currency’s accelerated selloff reflects growing concerns that the protectionist policies could push the US economy into recession, forcing the Federal Reserve to implement more aggressive rate cuts than previously anticipated.
The dollar index broke through several key technical support levels as traders rapidly repriced Fed expectations, with interest rate futures now indicating nearly 75 basis points of cuts priced in for 2024. The tariffs – which target multiple trading partners with reciprocal duties – have particularly rattled markets due to their potential to simultaneously slow growth while reigniting inflationary pressures.
This unusual stagflationary combination presents a policy dilemma for the Fed, as officials must now weigh recession risks against potential tariff-driven price increases. The dollar’s weakness has been most pronounced against traditional safe-haven currencies like the yen and Swiss franc, suggesting markets are beginning to question the greenback’s haven status amid growing US-specific economic vulnerabilities. Traders are now closely monitoring upcoming US economic data for signs of how quickly the tariff impacts may be filtering through to the real economy.
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