The U.S. dollar weakened on Wednesday against the yen and Swiss franc as market concerns grew over the looming imposition of 104% tariffs on Chinese goods. This fear rattled global stock markets and sent the Chinese yuan to record lows.
Despite these fears, President Donald Trump showed no signs of backing down from a 50% tariff increase on China, set to take effect in just a few hours. Trump accused Beijing of manipulating the yuan to offset the new levies.
Chris Weston, head of research at Pepperstone, warned that if the tariff hike goes ahead, it could push the U.S. economy into a deep recession. He likened the administration’s approach to an unyielding stance: “The beatings will continue until morale improves.”
The dollar hit a new high against the offshore yuan at 7.4288, surpassing the previous record of 7.3765. Market watchers are now focused on whether China’s central bank will allow further yuan depreciation.
Concerns over a potential U.S. economic slowdown were also pressuring the dollar. Investors started pricing in higher chances of more interest rate cuts from the Federal Reserve. Fed fund futures jumped early in the Asian session, suggesting a potential 111 basis points of cuts this year, up from 92 basis points just a day earlier.
The uncertainty sparked a flight to safety, driving demand for the yen and Swiss franc. Nomura analysts advised holding yen positions, citing fears of U.S. stagflation, Trump’s tariff policy, and sharp declines in stock prices.
The dollar dropped 0.7% to 145.23 yen, moving closer to a six-month low of 144.55. The yen also gained against high-yielding currencies as investors unwound carry trades.
The dollar also touched a six-month low against the Swiss franc at 0.8430, nearing crucial support at 0.8374.
Meanwhile, the euro rose 0.4% to $1.0996, driven by news that Germany’s conservative party and the center-left Social Democrats had agreed to form a coalition government, easing political tensions in Europe’s largest economy. The euro edged closer to last week’s high of $1.1147.
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