Dollar Hit by Tariff Escalation, Economic Concerns

The dollar index saw its sharpest drop in two years, falling to a fresh six-month low following President Trump's reciprocal tariff announcement and weaker-than-expected U.S. economic data. Commerce Secretary Lutnick reaffirmed no tariff withdrawals, though diplomatic negotiations continue.

Mixed Global Responses to US Tariffs

Mexico embraced favorable USMCA terms, while Canada cautiously moved toward limited retaliation. Europe’s reaction varied widely: EU's von der Leyen warned of retaliatory measures; Macron advised targeted responses and investment caution; Spain announced industry aid; Switzerland strongly denied currency manipulation; and the UK remained optimistic about a U.S. trade deal.

US Economic Data Fuels Growth Fears

ISM nonmanufacturing PMI unexpectedly dropped to 50.8, signaling stagnation and employment contraction. Continuing jobless claims hit their highest since November 2021, and Challenger layoffs surged to a four-year peak, fueling anxiety ahead of Friday’s jobs report. Fed Vice Chair Jefferson suggested holding steady policy, citing labor and inflation uncertainty.

EUR/USD Surges Amid Volatility Spike

EUR/USD briefly hit a six-month high of 1.1144, driven by broad dollar weakness, but eased slightly on profit-taking. Momentum remains bullish, potentially targeting September highs near 1.1214. Key support lies at 1.0954. USD/CHF saw its sharpest drop since mid-2022, while GBP/USD encountered resistance near 1.32, holding support at 1.3010.

Yen Strengthens Sharply; Yuan Weakens Slightly

USD/JPY plunged to an annual low at 145.19, stabilizing near 146 amid extreme volatility ahead of U.S. jobs data. USD/CNH retreated modestly after Fitch downgraded China’s credit rating, pushing investors toward regional cross-pairs.

Treasury Yields, Equities, Commodities Slide

Treasury yields fell 6-18 bps, steepening the 2s-10s curve amid growth concerns. Equities sank, with the S&P 500 dropping nearly 4%. Oil prices tumbled 6.6%, copper declined 3.8%, and gold pulled back 1%, highlighting severe risk aversion.