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, 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.
“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.”
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 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.
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A Z-score analysis – which measures how far current pricing deviates from historical norms – shows that the speed and magnitude of the shift towards bearish US dollar positioning is not only significant, but the most extreme on record. It underscores the scale of the sentiment reversal, suggesting traders are rapidly recalibrating long-held assumptions about the greenback’s role as a haven and store of value.
Friday’s price action rounded off yet another turbulent week for global markets, as President Donald Trump’s fast-evolving trade policy leaves investors struggling to figure out their next moves. The US dollar recorded its biggest plunge in over two years on Thursday, amid growing expectations that the Federal Reserve will have to lower borrowing costs to counter the contractionary impact of US tariffs.
The producer price index fell 0.4 per cent from a month earlier following a revised 0.1 per cent gain in February, according to a Bureau of Labor Statistics report released on Friday. The median forecast in a Bloomberg survey of economists called for a 0.2 per cent gain. On Thursday, data showed US inflation unexpectedly cooled ahead of tariffs, which are expected to spark price growth.
Other US assets also suffered. The S&P 500 index finished the day 3.5 per cent lower on Thursday, while long-term Treasuries sank.
Haven bids
Havens witnessed a surge in demand amid the flight to quality. The yen rallied as much as 1.7 per cent to 142.07 per US dollar on Friday, the strongest level since September.
The Swiss franc soared as high as 0.8259 per US dollar, a level last seen in early 2015, while gold rose to a fresh record. The euro climbed to as high as US$1.1473, the highest since February 2022. The move reflects emerging haven-like dynamics, bolstered by Germany’s historic suspension of its debt brake last month.
There is also uncertainty about what will happen after the 90-day pause for higher tariffs on dozens of other nations is over.
“Unless you think some resolution is imminent, then the market is likely to stay on the current path of least resistance – a dollar exit,” said Rodrigo Catril, strategist at National Australia Bank in Sydney. “The narrative of exiting US assets and selling the dollar is likely to persist as long as trade tensions remain elevated.”
The exodus from US assets is becoming a game changer for currency volatility. The cost of hedging swings in major exchange rates is climbing, with euro volatility reaching its highest level since 2020 and the Swiss franc hitting highs not seen since 2015. BLOOMBERG
