A Currency in Retreat: The Dollar’s Downward Slide
During the European trading session on Friday, the U.S. dollar suffered a considerable drop against other major currencies, showing the heightened concerns about the U.S. and global economic outlook. The dollar’s weakening is closely connected to worries about the intensifying global trade conflict, particularly the trade war between the U.S. and China.
Economic Anxiety Caused By Trade Tensions
The uncertainty regarding U.S. trade policy, particularly in regard to President Trump’s tariff speeches, has been a thorn in the side of investors. The post-announcement market dip after the suspension of a few tariffs’ imposition for 90 days was followed by a boost but died out as the realisation set in on the underlying fundamentals of the trade war.
The Safe-Haven Flight: Yen, Franc, and Euro Gain Ground
Investors fleeing the uncertain atmosphere surrounding the U.S. economy focused their attention on traditional safe-haven assets. The Japanese yen, Swiss franc, and even euro appreciated against the dollar due to their sustained reliability during bearish times. Interest in gold, another traditional safe haven, also increased alongside the others.
Fed Rate Cuts: A Looming Possibility
Traders seem to be more optimistic that the US Federal Reserve will take measures to ease interest rates in order to address pressing economic issues. Current policy expectations suggest that the Fed will start cutting rates around June and will fully cut it by 0.5% after Q4.
Significant Currency Movements: Key Exchange Rates
The influence of some of these factors was quite apparent in the movements of some key exchange rates.
- The US dollar dropped to more than a decade low of 0.8113 against the Swiss franc and over 3 years low of 1.1442 against the euro after declining from the early highs of 0.8258 and 1.1247, respectively. The next dollar support levels are seen around 0.79 against the franc and 1.15 against the euro.
- The dollar was also weaker against the British pound and Japanese yen, dipping to 1.3112 against the pound and 142.26 against the yen, which is a one-week and nearly six-month low, respectively, down from 1.2985 and 144.15, respectively. It is forecasted that the support levels for the dollar will be around 1.32 against the pound and 141.00 against the yen.
- The U.S. dollar dipped to a one-week low of 0.6259 against the Australian dollar and 0.5812 against the New Zealand dollar, which marks an eight-day low and against the Canadian dollar, it fell to a five-month low of 1.3882. This follows a retreat from initial highs of 0.6181, 0.5744, and 1.3958. If the dollar downtrend continues, it is expected that support levels will be set to 0.64 against the Aussie, 0.59 against the Kiwi, and 1.37 against the Loonie.
Traders and investors are waiting on the release of important U.S. economic datasets; this includes:
- U.S. Producer Price Index for March
- U.S. University of Michigan’s consumer sentiment for April
- U.S. Baker Hughes oil rig count
These metrics together will assist in forming a more clarified understanding of the U.S. economy and enhance the impact of the Federal Reserve’s policies concerning interest rates.
As the global trade tussles continue to persist, coupled with the risk of a recession, these factors greatly increase the chances of greater leaning on vague stimulus and direction policies, causing an unstable currency market. This illustrates the dropping U.S. dollar when highlighted alongside weakened exchange rates, framing the lack of stabilising policies as the reason for economic ambiguity.
