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(Bloomberg) -- Worries over global trade dragged the dollar to a six-month low on Monday, leaving investors bracing for more weakness ahead.
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The Bloomberg Dollar Spot Index extended declines for a fifth day, falling a total of 3.3% during that stretch. While Treasuries and stocks rallied on news that President Donald Trump will delay levies on some popular consumer electronics, sentiment on the dollar was undermined by his warnings that the exemption will prove temporary.
Protracted selloffs in the greenback and Treasuries — typically seen as havens in turbulent times — have exacerbated concerns that investors are lightening up on US assets in the face of tectonic trade policy shifts and broader political uncertainty.
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Weakness in the dollar and Treasuries is a “horrible, toxic combination,” said Jordan Rochester, head of macro strategy for EMEA at Mizuho International Plc., in an interview on Bloomberg Television.
The Bloomberg Dollar Spot Index finished Monday down 0.3%. The gauge has fallen about 6.1% so far this year, on track for its biggest annual loss since 2017.
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Positioning in the options market suggested traders were hedging against further 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 indicates greater demand for put options that would benefit from a weaker dollar than for call options that would gain from a stronger one.
The S&P 500 index gained 0.8% on Monday. The yield on 10-year Treasuries fell 11 basis points to 4.38%. A five-day bond market selloff unleashed by anxiety over Trump’s trade war sent 10-year Treasury yields to the biggest weekly surge in over two decades last week.
Lasting damage?
The discussion that has dominated Wall Street for much of the past week has centered on whether Trump’s actions, even if they are eventually reversed, have inflicted 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.”