US Dollar Emerges as Latest Victim of Market Mayhem

US Dollar Emerges as Latest Victim of Market Turmoil

The US dollar has emerged as the latest victim of last week’s market turmoil as a worsening global trade war risks derailing US economic growth.

A Bloomberg gauge of the greenback tumbled to a fresh six-month low on Friday (Apr 11) after China raised tariffs on all US goods to 125 per cent, effective from Apr 12. The index kept its losses as US wholesale prices fell in March by the most since 2023, showing tame inflation ahead of higher tariffs. Options traders turned bearish for the first time in five years, as part of a broader exodus from US assets.

Haven Currencies Benefit

Haven currencies, such as the yen and Swiss franc, and gold benefited from the outflows. The euro rose to its strongest level in three years, heading for its biggest two-day advance since 2009.

US Dollar Sentiment Turns Negative

“The US’ growth advantage to the rest of the world has finally disappeared,” TD Securities strategists Jayati Bharadwaj and Mark McCormick wrote in a note to clients, adding that investors are increasingly moving towards European and Asian assets ex-China. “A combination of all this has turned dollar sentiment deeply negative in a short span of time.”

Speculative Traders Turn Bearish

A group of speculative traders, including hedge fund and asset managers, switched to betting against the US dollar and became most short on the currency since October. They held some US$4.3 billion via those bets in the week through Apr 8, data from the Commodity Futures Trading Commission showed.

Traders’ Confidence

Traders are not only losing confidence in the US dollar’s long-term prospects – they are doing so at the fastest pace on record. One-year risk reversals, a key gauge of demand for upside versus downside exposure against major peers, have flipped in favour of US dollar downside for the first time in five years.

Conclusion

The US dollar has emerged as the latest victim of last week’s market turmoil, as a worsening global trade war risks derailing US economic growth. With traders increasingly moving towards European and Asian assets ex-China, the US dollar’s long-term prospects are looking increasingly uncertain. As the situation continues to unfold, it remains to be seen how the US dollar will fare in the coming weeks and months.

FAQs

Q: What is the current state of the US dollar?

A: The US dollar has tumbled to a fresh six-month low, with a Bloomberg gauge of the greenback falling to a record low.

Q: Why is the US dollar falling?

A: The US dollar is falling due to a worsening global trade war, which is putting pressure on the US economy and causing traders to lose confidence in the dollar’s long-term prospects.

Q: What are the implications for other currencies?

A: Other currencies, such as the yen and Swiss franc, are benefiting from the outflows and have risen in value. The euro has also risen to its strongest level in three years.

Q: What does the future hold for the US dollar?

A: It remains to be seen how the US dollar will fare in the coming weeks and months. However, with traders increasingly moving towards European and Asian assets ex-China, the US dollar’s long-term prospects are looking increasingly uncertain.