The US dollar extended its decline in European trading Wednesday, retreating against major currencies as investors turned cautious ahead of key economic data and a potentially market-moving trade policy announcement. The currency’s weakness reflects growing risk aversion, with traders reducing exposure ahead of the ADP private sector employment report and President Trump’s expected unveiling of sweeping reciprocal tariffs later in the day.
Market participants are positioning for heightened volatility, as the tariff announcement – rumored to take effect immediately – could fundamentally alter global trade dynamics. The dollar’s pullback suggests traders are hedging against the possibility that new trade barriers might ultimately hurt US economic competitiveness more than they protect domestic industries. Currency markets appear to be pricing in scenarios where the tariffs could force the Federal Reserve to reconsider its policy path.
Technical indicators show the dollar index testing critical support levels, with a break below current ranges potentially accelerating the downward momentum. The simultaneous pressure from both economic uncertainty and trade policy risks has created a perfect storm for dollar weakness, particularly against traditional safe-haven currencies like the yen and Swiss franc. Traders now await concrete details about the tariff measures’ scope and implementation timeline for clearer directional signals.
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