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(Bloomberg) -- A gauge of the dollar resumed declines following a short-lived reprieve as concerns over an expanding trade war dented demand for US assets.
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The greenback hit a fresh six-month low, falling against every Group-of-10 currency, as new restrictions by the Trump administration on Nvidia Corp.’s chip exports to China added to the risk-off sentiment. It slightly pared losses after China said it wants to see a number of steps from the US administration before it agrees to trade talks.
“All this uncertainty and talk of more tariffs is fueling the idea of de-risking from US assets — sell the dollar,” said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank Ltd. in Sydney. “Euro and Swiss franc are prime candidates of that flow, even as the trade war escalates and global growth deteriorates.”
Haven currencies including the Swiss franc and yen rallied earlier alongside the euro while demand for long-volatility exposure surged. The Bloomberg Dollar Spot Index slid as much as 0.6% on Wednesday after rising for the first time in six days on Tuesday.
The greenback gauge has slumped more than 3% so far in April, on track for its steepest monthly decline since late 2022, amid deepening concerns about a trade war-driven US recession and the dollar’s appeal as a safe haven.
“We see the era of strong dollar as having peaked,” Jefferies International chief economist and strategist Mohit Kumar wrote in a note to clients. “US dollar weakness is likely to continue. Our favorite version of a weaker dollar has been long gold as central banks seek to diversify out of US dollar in alternatives.”
In another sign of weakening confidence in traditional safe-haven US assets, Treasuries suffered their worst selloff in more than two decades last week due to worries that foreign holders such as China were reducing ownership.
Fund managers are the most bearish on the dollar since 2006, according to a Bank of America survey. That sentiment is now spilling into options markets, where traders are paying a premium — for the first time in five years — to hedge against a weaker greenback over the next 12 months.
What Bloomberg strategists say...
“The US’s tariff policy, capital outflow, and the assault on the dollar as a politically meddle-free global financial instrument are keeping pressure on the US currency. In this environment, other currencies, such as sterling, are likely to remain overall supported, with weak domestic fundamentals only providing fleeting headwinds, until the dollar looks cheap enough again to attract buyers despite its new risks.”