US dollar ‘at risk of confidence crisis’ as Trump tariffs rattle global markets – business liveNEWS | 03 April 202507.01 EDT European lunchtime summary
After a volatile morning on Europe’s financial markets, here’s a quick recap of the situation.
The US dollar has tumbled today as investors fear that Donald Trump’s new trade war could trigger a recession.
The dollar is down around 2% against a basket of other currencies, a sizeable selloff, after investors were startled by the scale of the tariffs announced by the US president last night.
The dollar is now down at a six-month low, with Deutsche Bank warning its clients to “beware a dollar confidence crisis”.
Deutsche says:
The safe haven properties of the dollar are being eroded and this is imposing a significant cost on unhedged dollar holdings. Beyond that, developments since the start of the year make us worried about a broader undermining of confidence in the US economic outlook and the medium-term desirability of dollar allocations.
European stock markets have had a rough morning. Banks and miners have fallen on fears of an economic downturn. Luxury goods stocks are also lower, an anticipation that their exports to the US will be hurt by new tariffs.
Here’s the situation:
FTSE 100 : down 130 points or -1.5% at 8477 points
Germany’s DAX : down 496 points or 2.2% at 21,894 points
France’s CAC: down 195 points or 2.5% at 7,662 points.
That followed a sharp plunge in shares across the Asia-Pacific, where Japan’s Nikkei lost 2.7%.
The sell-off came after China was hit with a 34% fee, in addition to a 20% tariff on all Chinese imports already in place, while the EU will now be levied at 20% and Japan at 24%. Trump said America had been “looted, pillaged and raped” by its trading partners: “In many cases, the friend is worse than the foe.”
Wall Street is heading for heavy losses when trading begins in New York at 9.30am local time (2.30pm BST).
Economists are warning that Trump’s tariffs will push the US’s effective tariff rate to its highest level in over a century.
Raphael Olsyzna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management, says:
The US effective tariff rate is set to rise to around 25%, the highest level since the start of the 20th century. This will have a large and direct negative impact on the US economy, pushing growth lower and prices higher. Global growth will also be weaker. What happens next will depend on how countries respond, but we expect some escalation before any eventual de-escalation. Outside the US, the most significant impact will be on Germany and Asian economies. A deteriorating growth outlook is likely to push central banks to lower policy rates, but they will need to ensure that longer-term inflation expectations stay anchored. Still, we think that bond yields will fall further and continue to favour intermediate maturities. Current US equity valuations are not priced for a significant slowdown. We still prefer UK equities, defensives over cyclicals and value overgrowth. Finally, the US dollar is likely to suffer from relative growth headwinds. Safe-haven currencies should do well in the near term.
In other developments:Author: Helen Livingstone. Graeme Wearden. Source
