[LONDON] The euro rallied more than 2 per cent against the dollar on Thursday (Apr 3) and was set for its best day in more than nine years as investors shunned the greenback after President Donald Trump announced harsher-than-expected tariffs on US trading partners.
Investors also flocked to safe haven units such as the yen and Swiss franc as the dollar weakened to six-month lows against both those currencies.
The highly anticipated tariff announcement sent shockwaves through markets, with global stocks sinking and investors scrambling to the safety of bonds as well as gold.
Trump said he would impose a 10 per cent baseline tariff on all imports to the United States and higher duties on some of the country’s biggest trading partners.
The new levies rattled markets on fears a full-blown trade dispute could trigger a sharp global economic slowdown and fuel inflation.
The euro gained 2.2 per cent to a six-month high of US$1.1021, its biggest intraday advance since December 2015. The dollar fell 1.8 per cent on the Japanese yen to 146.65, and 2.25 per cent on the Swiss franc to 0.8618.
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Both safe havens were at their strongest on the greenback in six months.
Britain’s pound also gained 1.3 per cent to 1.3178.
Deutsche Bank warned on Thursday of the risk of a crisis of confidence in the US dollar, saying major shifts in capital flow allocations could take over from currency fundamentals and currency moves become disorderly.
Trump has already imposed tariffs on aluminium, steel and autos, and increased duties on all goods from China.
“Eye-watering tariffs on a country-by-country basis scream ‘negotiation tactic’, which will keep markets on edge for the foreseeable future,” said Adam Hetts, global head of multi-asset and portfolio manager at Janus Henderson Investors.
“Negotiations are now going to be front of mind. This is probably the other big part of why we’re seeing some of these currencies outperform,” said Nicholas Rees, head of macroeconomic research at Monex Europe.
“It’s very difficult actually to see how other countries make concessions that would encourage the US to lift these tariffs. And I think that’s a big underpriced risk.”
Investors are worried that some US trading partners could retaliate with measures of their own, leading to higher prices.
EU chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures if talks with Washington failed.
Worries about a global trade war have intensified since Trump stepped into the White House in January, combining with a slew of weaker-than-expected US data to stoke recession fears and undermine the dollar.
China’s onshore yuan slid to its weakest level against the dollar since mid-February. China’s offshore yuan also hit a two-month low, but later steadied.
The Vietnamese dong slumped to a record low.
The Mexican peso and Canadian dollar strengthened, with the dollar about 0.7 per cent weaker against both.
Canada and Mexico, the two largest US trading partners, already face 25 per cent tariffs on many goods and will not face additional levies from Wednesday’s announcement. REUTERS
