SYDNEY: The dollar lost ground to the safe-haven yen and Swiss franc on Wednesday as the imminent imposition by the U.S. of 104% tariffs on China spooked world equity markets and sent the Chinese yuan to record lows.
President Donald Trump showed no sign of backing away from the new increase of 50% on China, which goes into effect in just a few hours, accusing Beijing of manipulating the yuan to offset the levies.
“If that goes ahead, you may as well kiss goodbye to any last, lingering hopes that the U.S. economy might avoid a deep recession,” said Chris Weston, head of research at broker Pepperstone.
“The message from the White House appears to be this – the beatings will continue until morale improves.”
The dollar has already reached an all-time top on the yuan offshore at 7.4288 , breaching the previous high at 7.3765, and all eyes are on China’s central bank to see whether it allows a further easing at its daily fix.
Worries about a U.S. downturn were pressuring the dollar elsewhere as markets returned to pricing in more rate cuts from the Federal Reserve.
Fed fund futures jumped in early Asian trade to imply around 111 basis points of cuts this year, compared to 92 basis points early on Tuesday.
Fresh losses in U.S. stock futures and heavy selling in longer-dated U.S. Treasuries sparked demand for safe haven currencies, notably the yen and Swiss franc.
“Our top FX expression is to be long yen given U.S. stagflation fears, exacerbated by Trump’s aggressive reciprocal tariffs and tit-for-tat escalations, and the sharp selloff in equities,” wrote analysts at Nomura in a note.
“Beyond the yen’s relative safe-haven status, Japan’s macro backdrop remains relatively strong and rate differentials are expected to continue to favour JPY.”
