Market News

BY Matthew Burgess and Naomi Tajitsu

(Bloomberg) -- The dollar was propelled to a fresh six-month low as the Trump administration’s latest back-and-forth on tariff policy added to investor unease toward US assets.

The currency extended losses into a fifth day on Monday. While Treasuries and stocks flashed relief over President Donald Trump’s weekend reprieve of levies on some popular consumer electronics, sentiment was undermined by his warnings that the exemption will prove temporary.

The greenback’s selloff has triggered further concern in financial markets that it’s suffering a regime change. The dollar and Treasuries typically gain during times of stress and geopolitical tension, given the power of the US economy and depth of its markets.

Trump “is now seeing a watering down of tariffs, but still dollar weakness, and US rates still selling off,” Jordan Rochester, head of macro strategy for EMEA at Mizuho International Plc., said in an interview on Bloomberg Television. “It’s a horrible, toxic combination.”

The Bloomberg Dollar Spot Index slid 0.4% on Monday. The index has fallen about 6% so far this year. For comparison, the last time it suffered a bigger loss on an annual basis was back in 2017.

S&P 500 futures gained 1.4% in early US trading today. The yield on 10-year Treasuries fell to 4.45%.

The discussion that has dominated Wall Street for much of the past week has been whether Trump’s actions, even if they are eventually reversed, have inflicted some lasting damage to the idea that the US dollar and Treasuries are the ultimate risk-free assets.

“We are talking about a regime change in the way the market views the dollar, particularly during times of global financial stress,” Steve Barrow, a strategist at Standard Bank, wrote in a note to clients on Monday. “We’d note that the other key component of the US’s safe-asset allure – the Treasury market – has not been particularly safe.”

That view was echoed by Derek Halpenny, head of global markets research at MUFG Bank, who focused on weekend remarks from Trump and Commerce Secretary Howard Lutnick, who both stressed a longstanding plan to apply a different, specific levy to the technology sector.

“It is difficult to see any fundamental factor that will likely improve investor sentiment,” Halpenny wrote in a report. “Key levels were broken last week for the dollar and rhetoric from Trump and Lutnick, despite the reprieve, does not point to any reason for optimism.”

The options market was also signaling trader demand for hedging against dollar declines. An index measuring three-month risk reversals — or the spread between call and put options — on the dollar against its major peers has dropped to a five-year low.

That’s an indication of greater demand for put options that would benefit from a weaker dollar, than for call options that would gain from a stronger one.

“Trump’s actions have persistently damaged the ‘US brand’,” wrote Dana Malas, a strategist at Skandinaviska Enskilda Banken AB. “This means that dollar assets, both inside and outside the US, should continue to carry higher risk premiums.”

Almost 80% of respondents to a Bloomberg survey predicted the dollar would weaken further over the next month, the biggest proportion of bears since the surveys began in 2022.

Strategists at the biggest Wall Street banks also see the potential for further weakness.

JPMorgan Chase & Co. analysts suggested investors remain bearish the dollar, especially against the yen and euro, as there’s still a chance of a US recession. Mizuho Bank Ltd. anticipates the US currency may fall another 5% on a trade-weighted basis before rebounding, based on what happened in 2017-18 and the pandemic.

“The design and implementation of these tariffs should have a negative impact on the currency because they have contributed to eroding consumer and business confidence,” Goldman Sachs Group Inc. analysts including Kamakshya Trivedi wrote in a note.

“If tariffs weigh on US firms’ profit margins and US consumers’ real incomes, like we think they will, they can erode that exceptionalism and, in turn, crack the central pillar of the strong dollar,” they said.

--With assistance from Michael G. Wilson and Anya Andrianova.