The U.S. dollar started the week on a downbeat note, following substantial losses last week attributed to concerns over a potentially weakening labor market and growing anxiety over global trade conflicts. As tensions over tariffs escalated, investors flocked to traditional safe-haven assets, notably the Japanese yen and the Swiss franc, both of which surged to multi-month highs.
Trade uncertainty has dominated market sentiment, with U.S. President Donald Trump’s decision to impose tariffs on key trading partners fueling fears of a global economic slowdown. While Trump delayed some of these tariffs by a month, investor confidence in the U.S. economy, which had previously been a global outperformer, has diminished. As a result, net long positions on the U.S. dollar in the futures market have dramatically dropped from a peak of $35.2 billion in January to just $15.3 billion.
Risk-averse traders have increasingly turned to the yen and the Swiss franc. On Monday, the yen strengthened by 0.5% to 147.27 per dollar, not far from its five-month high hit on Friday. Meanwhile, the Swiss franc rose to a three-month high of $0.87665 in early trading. The euro also gained, climbing 0.3% to $1.0867, bolstered by Germany’s significant fiscal reforms, marking its best weekly performance since 2009.
As a result, the dollar index, which tracks the U.S. currency against a basket of six major rivals, remained at 103.59 on Monday, lingering near a four-month low touched last week. The greenback had dropped more than 3% last week against its peers, marking its worst weekly performance since November 2022, amid mounting concerns over tariffs and their potential economic impact.
Investor anxiety deepened following comments by President Trump in a Sunday interview with Fox News, in which he refrained from predicting whether the U.S. economy would face a recession. The president maintained that his tariff actions—targeting Mexico, Canada, and China—were part of a broader effort to “bring wealth back to America.” However, market analysts expressed unease at the uncertainty of his trade policies. Tony Sycamore, a market analyst at IG, warned, “Strap in tight – we have all the ingredients in place for another testing week ahead.”
In addition, U.S. economic data released on Friday painted a mixed picture. Job growth showed a modest pickup in February, with nonfarm payrolls rising by 151,000. However, this figure came in below expectations, and there were signs of weakness in the labor market, with the unemployment rate increasing and participation rates declining. These cracks in the labor market, coupled with the disruptive effects of trade policy, have raised concerns about the economy’s overall resilience.
Citi strategists noted that the February jobs report should give the Federal Reserve the comfort to keep interest rates steady at its upcoming meeting, but warned that the labor market’s cooling trend and the slowdown in consumer spending could lead to rate cuts later in the year. Traders are now pricing in 75 basis points of rate cuts from the Fed in 2025, with a cut fully anticipated by June.
In his remarks on Friday, Fed Chairman Jerome Powell acknowledged the uncertainty surrounding the economic impact of Trump’s tariff policies, highlighting the potential for these measures to stoke inflationary pressures if they persist.
Elsewhere, other major currencies saw slight gains. The British pound edged up 0.16% to $1.2941, while the Australian dollar rose 0.14% to $0.6315. The New Zealand dollar traded at $0.57225.
With trade tensions at the forefront and economic uncertainties mounting, market watchers are bracing for a turbulent week ahead.
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