U.S. Dollar Slips as Markets React to Renewed Tariff Tensions and Growth Concerns
The U.S. dollar declined broadly on Monday, reversing the previous week’s gains as investors reassessed the potential economic fallout from President Donald Trump’s evolving tariff policies.
The greenback weakened following Trump’s Friday announcement to double tariffs on steel and aluminum imports to 50% starting Wednesday. Tensions escalated further as China rejected U.S. accusations regarding critical mineral exports, calling them “groundless” and vowing to respond firmly. Treasury Secretary Scott Bessent noted that Trump and Chinese President Xi Jinping were expected to speak soon in hopes of resolving the matter.
Michael Brown, an analyst at Pepperstone, observed that the dollar was facing widespread selling pressure. “Each time tariff fears flare up, the market reverts to the ‘sell America’ trade,” he remarked.
The dollar fell 0.8% to 142.85 yen, nearly erasing its recent gains against the Japanese currency. Meanwhile, the euro strengthened 0.8% to $1.14355, its highest level since late April, with attention turning to the European Central Bank’s rate decision later in the week.
Further weighing on the dollar, U.S. manufacturing data revealed a third straight month of contraction in May. Tariff-related supply chain delays suggested growing shortages of key goods. In contrast, European factory activity showed signs of stabilization, although Asian output continued to slide.
The dollar index dropped 0.6% to 98.75, just above its recent three-year low of 97.923. Persistent trade tensions have undermined the dollar’s safe-haven appeal, with investors concerned that ongoing disputes could lead to a U.S. recession.
Morgan Stanley analysts forecast continued weakness for the dollar over the next year, citing an expected alignment of U.S. interest rates and growth with other major economies.
Although the dollar gained 0.3% last week after a trade deal with the EU and a court ruling that temporarily blocked Trump’s tariffs, a quick reversal by an appeals court and comments from the administration about alternate routes to impose tariffs revived investor caution.
Market sentiment has also soured on U.S. fiscal policy, fueling broader selling of American assets including stocks and government bonds. These concerns may intensify as the Senate begins debating a major tax and spending package, which could add $3.8 trillion to the federal debt over the next decade.
Barclays analysts warned that Section 899 of the bill—potentially allowing the U.S. to impose taxes on investors from countries with “unfair foreign taxes”—could spook global investors and further weaken confidence in U.S. capital markets.
In other currency markets, the Polish zloty hit a two-week low against the euro after nationalist candidate Karol Nawrocki won the presidential runoff, sparking fresh political and market uncertainty.
