The dollar index slipped further for a second consecutive session on Wednesday, falling to 102.2 and edging closer to the six-month lows touched last week.
Dollar extends losses, approaches six-month lows
Mounting concerns over global growth, including the rising risk of a US recession triggered by intensifying trade tensions, dampened investor sentiment and fueled demand for alternative safe-haven currencies such as the Japanese yen and Swiss franc. The risk-off mood was further exacerbated by China’s announcement that it would impose an 84% tariff on US imports starting Thursday—more than doubling the previously indicated 34% rate. The move marks a significant escalation in the trade standoff, coming in direct response to the latest round of US tariffs, which took effect earlier in the day and include a sweeping 104% levy on a broad range of Chinese goods.
Continued sell-off in US Treasuries
The dollar also came under pressure from a continued sell-off in US Treasuries, as investors grew increasingly concerned about the longer-term implications of a fractured global trading environment. Speculation is mounting that foreign holders, particularly in Asia, may be reducing exposure to US government debt as geopolitical tensions intensify and uncertainty clouds the outlook for US fiscal stability. The resulting upward pressure on yields has added to the downward drag on the greenback, as markets reassess expectations for Federal Reserve policy in the face of potential stagflationary risks.
Meanwhile, expectations of rate cuts by the Federal Reserve have begun to solidify, with futures markets now pricing in nearly 75 basis points of easing by year-end. Weaker economic data, alongside rising geopolitical stress, has led traders to hedge against the possibility that the Fed may need to act sooner and more aggressively than previously anticipated to cushion any downturn.
