The dollar fell on Tuesday as concerns over the economic impact of the trade war triggered by the United States pulled down US Treasury yields and sent stock prices plunging, prompting investors to flock to overseas safe-haven assets.
The Bloomberg Dollar Spot Index dropped by 0.7% at one point, hitting its lowest level in a week, before the decline narrowed. Stocks fell across the board as concerns over the global economy prompted investors to turn to gold and safe-haven currencies, including the Swiss franc and the Japanese yen.
Sarah Ying, head of foreign exchange strategy at CIBC Capital Markets, said: “The market is considering the negative impact of tariff uncertainty on the US economy, and the traditional safe-haven buying of the US dollar is being questioned. We are in the midst of a theme shift: the market is moving from a systemic bullish view on the US dollar to a bearish one.”
US President Donald Trump has fulfilled his vow to impose large-scale import taxes on Canada and Mexico and has doubled the existing tariffs on China, triggering swift retaliation.
As the US economy loses momentum, the prospect of a trade war escalation looms. This has led an increasing number of investors to bet that the dollar will weaken as the Federal Reserve resumes cutting interest rates in the coming months.
The Swiss franc rose 0.8% against the US dollar, and the Japanese yen climbed 0.5%, leading gains among other Group of Ten currencies. The Canadian dollar weakened slightly, falling about 0.1% against the US dollar.
However, the early moves by Canada and Mexico to impose tariffs on China last month have raised doubts as to whether these tariffs will be sustained or lifted after negotiations.
Goldman Sachs strategists Michael Cahill and Stuart Jenkins wrote in a report: “The initial market reaction suggests that investors do not believe the tariffs on Mexico and Canada will persist or lead to more severe trade disruptions.” “Therefore, investors instead view the initial move as a way to prepare for the dominant market narrative of recent weeks – the underperformance of the US.”
However, surveys show that this uncertainty has sparked concerns among consumers that inflation will remain high or even rise further. Due to worries about the overall economic outlook, the U.S. consumer confidence index in February recorded its biggest drop since August 2021.
Ed Al-Hussainy, global interest rate strategist at Columbia Threadneedle Investments, said: “The economic situation is much worse now compared to a year ago.”
Deutsche Bank believes that the events of the past few days indicate that the US dollar is at risk of losing its traditional status as a safe-haven currency. The bank’s strategists attribute the dollar’s decline to “the speed and scale of global developments” and “wider uncertainties in the United States”.
“We did not write this lightly. But the speed and scale of global change is so rapid that we must acknowledge this possibility,” George Saravelos, the bank’s global head of foreign exchange strategy, said in a note to clients. “It is hard to overstate the scale of change in the global economy and geopolitical relations that has occurred in just a few days.”
Deutsche Bank’s concerns stem from Tuesday’s sharp fall in the US dollar, which caught investors who had bet on further strengthening of the dollar off guard. Despite the US continuing to impose tariffs on its major trading partners, the dollar index still dropped by 0.7%, and many believe this could boost the dollar.
Technical analysis:
Gold: Yesterday, we arranged for a direct buy stop operation after the price broke through the blue momentum area. As shown in the plugin, this operation can achieve a profit-to-loss ratio of about 5 times. Although the ADP data will be released during the day, we still recommend focusing on the retest of the demand area after the price re-challenges 2915/20. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg.
The Nasdaq: After the price further refreshed a new low around 20,000, a rebound occurred. Within the day, it is necessary to closely monitor whether a key stabilization signal appears when the price retraces to the 21,000 – 22,000 range for the second time. If it does, attempts should be made to buy low in this area 1-2 times. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg.
Crude oil: The price continues to consolidate at a low level, and the short-term trend is still unclear. In terms of operation, you can try the low-buy (ICT) approach after clearing the liquidity; or continue to wait until the trend becomes more clear before attempting to place a low-buy order in the demand area. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V:Hana-fgfg.
Today’s key financial data and events to focus on:
18:00 Eurozone Producer Price Index (Year-on-Year) for January
21:15 US ADP Employment Change for February (thousands)
At 22:30, Bank of England Governor Bailey and other senior central bank officials will answer questions from MPs regarding the central bank’s decision to cut interest rates in February.
23:00 US January Durable Goods Orders Revised Value
