US dollar tumbles as Trump's EU tariff talk spurs investor flight
[NEW YORK] The US dollar dropped across the board on Friday (May 23), as investors dumped the currency after US President Donald Trump once again ratcheted up his trade war, recommending that the European Union (EU) be hit with 50 per cent tariffs beginning Jun 1.
That rekindled concern about the impact of duties on the world economy and global trade. Trump said in comments on social media that the EU was 'very difficult to deal with' and 'our discussions with them are going nowhere'.
He threatened in a separate post to impose a 25 per cent tariff on Apple iPhones not made in the United States, as well as Samsung and other smartphone makers.
'The key theme that is weighing on the dollar right now is the loss of confidence in US policy,' said Elias Haddad, senior markets strategist at Brown Brothers Harriman in London. 'There's an ongoing trade war and that's leading countries to reassess their dependency on the US.'
In afternoon trading, the US dollar sank 1 per cent versus the safe-haven Japanese yen to 142.48 after earlier falling to a two-week low. For the week, the greenback was down 2.2 per cent against the Japanese currency, on track for its largest weekly fall since Apr 7.
The euro rose 0.8 per cent against the US dollar to US$1.1363. Earlier in the session, it touched a two-week peak, and was on track for its biggest weekly rise in six weeks.
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The dollar index, which measures the greenback against a basket of currencies, fell 0.8 per cent to 99.09, hitting a three-week trough. For the week, the greenback was down 1.9 per cent, on track for its biggest weekly percentage decline since early April.
Treasury Secretary Scott Bessent noted that Trump's tariff comments were in response to the EU's pace on tariff talks, noting that the US president does not believe the EU's trade offers to the United States are of sufficient quality.
US stocks also fell in tandem with the US dollar. Jayati Bharadwaj, a global FX strategist at TD Securities, said the US dollar and stocks selling off in unison highlighted the US currency's failure this year to act as a haven currency. 'The dollar's correlation with equities is also broken ... it's flipped completely in the last few weeks and we expect it to stay that way. That's because the risks that we've been dealing with since the start of the year are US-centric,' she added.
The Japanese currency, meanwhile, got a boost earlier from data showing Japan's core inflation accelerated at its fastest annual pace in more than two years in April, raising the odds of another interest rate hike by year-end from the Bank of Japan.
The data underscores the dilemma facing the Bank of Japan, which must grapple with price pressures from persistent food inflation as well as economic headwinds from Trump's tariffs. Super-long Japanese government bonds have also scaled record highs last week, although yields dipped on Friday.
After Moody's last week downgraded the US debt ratings, investor attention has focused on the country's US$36 trillion debt pile and Trump's tax bill, which could add trillions of dollars more to it. The bill narrowly passed the Republican-controlled US House of Representatives and now heads to the Senate for what is likely to be weeks of debate, keeping investor sentiment fragile in the near term.
Sterling strengthened 0.9 per cent against the US dollar to US$1.3533 after earlier climbing to a more than three-year high. For the week, the pound was up 1 per cent, posting its largest weekly gain in five weeks. REUTERS
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