By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The safe-haven yen and Swiss franc climbed in volatile trading on Thursday, while the dollar slumped against most currencies, as jittery investors turned increasingly risk-averse amid an extended sell-off on Wall Street triggered by an escalating trade war initiated by the United States.
Investors are worrying about the potential impact of the Trump administration’s big tariffs on the U.S. economy.
The dollar trimmed losses after U.S President Donald Trump on Thursday exempted imports from Canada and Mexico from his 25% tariffs for a month, two days after imposing them, the latest unexpected twist in his trade policies that have unsettled investors.
“The narrative has shifted on tariffs, which are now viewed as a hindrance to economic growth,” said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.
“The market is starting to see that there are a lot of U.S. companies dependent on exports and imports. If our trade numbers decrease overall, that’s probably not good for the economy, which could slow down as a result.”
The yen and Swiss franc typically benefit in times of risk aversion.
In afternoon trading, the dollar fell 0.6% to 147.96 yen, hitting a five-month low earlier of 147.31. Against the Swiss franc, the dollar dropped to a three-month low of 0.8825 franc, and last traded down 0.8% at 0.8838.
The dollar also weakened against the Canadian and New Zealand dollars, as well as the biggest emerging market currencies, such as the Mexican peso, South African rand, and the Turkish lira.
The sell-off in U.S. equities and safe-haven buying of the yen and Swiss franc has mostly overshadowed the euro’s performance on Thursday.
The euro touched a four-month peak against the dollar after the European Central Bank cut interest rates for the sixth time in nine months, as expected, but revised higher its near-term inflation forecast.
The single European currency rose to its highest since November, of $1.0854, before easing to $1.0784, little changed on the day. The euro has gained about 4% so far this week, its biggest weekly jump since March 2020.
The shared currency has also benefited from Germany ramping up spending, with a massive 500 billion euro ($540.90 billion) special fund sought for infrastructure and plans to increase defense investment shackled by rigid borrowing rules. Hefty government spending, which can be supportive for growth overall, can also exacerbate price pressures.
The ECB on Thursday raised its inflation forecast to 2.3% this year for the euro zone, above the 2.1% seen three months ago. Measures of longer-term inflation in the euro zone have already surged from around 2.05% early this week to 2.24% by Thursday, an unusually large shift.
Jan Felix Gloeckner, senior investment specialist, at Insight Investment wrote in emailed comments about a shift in the ECB’s tone suggesting a possible slowing down of policy easing.
“Short-term inflation forecasts pushed upwards, while the Bank (ECB) warned that policy was becoming ‘meaningfully less restrictive’,” Gloeckner said. “This was taken by markets as meaning that the easing cycle will slow, with less than two more cuts now priced in by year end.”
GERMANY’S SPENDING PLAN IMPACT
A big focus for investors is the impact of Germany’s huge spending plan on ECB monetary policy. ECB President Christine Lagarde, in a press conference after the rate decision, said the spending proposals would boost European growth.
But the ECB needed to be “attentive, vigilant” and understand how it was going to work, she added. “What the timing will be, what the financing will be so that we can then draw the conclusions … and what impact it would have eventually on inflation.”
Across the Atlantic, the dollar index, which measures the greenback against six peers, was on a four-day losing streak, falling to a four-month low. It was last down 0.1% at 104.20.
U.S. data on Thursday was mixed overall, providing more evidence of a looming slowdown. For instance global outplacement firm Challenger, Gray & Christmas said it tracked 62,242 announced job cuts by the federal government from 17 different agencies in February. Planned layoffs soared to 172,017 in February, partly reflecting federal government layoffs. These are numbers not seen since the last two recessions, Challenger said.
Another report on Thursday showed a surge in imports in January as businesses rushed to bring in merchandise ahead of import duties, driving the trade deficit to a record high and putting trade on course to subtract from gross domestic product in the first quarter.
The U.S. dollar dipped 0.2% against the Canadian currency to C$1.4312.
Canadian Prime Minister Justin Trudeau said on Thursday the trade war with the United States would continue for the foreseeable future. He said he would keep engaging with senior Trump administration officials about the tariffs on all Canadian imports.
Currency
bid
prices at
6 March
09:50
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 104.18 104.29 -0.09% -3.97% 104.39 103.
index 75
Euro/Doll 1.0784 1.0789 -0.05% 4.15% $1.0854 $1.0
ar 766
Dollar/Ye 147.97 148.92 -0.61% -5.94% 149.31 147.
n 32
Euro/Yen 159.58 160.62 -0.65% -2.23% 161.27 159.
13
Dollar/Sw 0.8835 0.8909 -0.79% -2.61% 0.8926 0.88
iss 26
Sterling/ 1.2881 1.2893 -0.08% 3.01% $1.2924 $1.2
Dollar 866
Dollar/Ca 1.4293 1.4345 -0.35% -0.59% 1.4374 1.42
nadian 39
Aussie/Do 0.633 0.6335 -0.06% 2.32% $0.6364 $0.6
llar 323
Euro/Swis 0.9527 0.9611 -0.87% 1.43% 0.9636 0.95
s 15
Euro/Ster 0.8371 0.8366 0.06% 1.18% 0.8411 0.83
ling 61
NZ 0.5734 0.5726 0.13% 2.47% $0.576 0.57
Dollar/Do 21
llar
Dollar/No 10.8846 10.9013 -0.15% -4.23% 10.9227 10.8
rway 252
Euro/Norw 11.7401 11.7661 -0.22% -0.24% 11.794 11.7
ay 11
Dollar/Sw 10.1721 10.188 -0.16% -7.67% 10.2154 10.0
eden 88
Euro/Swed 10.976 10.9955 -0.18% -4.28% 11.027 10.8
en 845
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Yadarisa Shabong in Bengalaru and Kevin Buckland in Tokyo; Editing by Jacqueline Wong, Sonali Paul, Alex Richardson, William Maclean)
