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The dollar slumped on Thursday and global stock markets dropped as investors rushed to price in growing damage to the world’s biggest economy from Donald Trump’s trade war.
The dollar fell 2.1 per cent against a basket of trading partners’ currencies, on track for its worst day since 2022, as investors fretted about lower growth from the president’s levelling of sweeping tariffs on US imports, and bet on faster interest rate cuts.
“Investors are sinking their teeth into the dollar, on the narrative that tariffs will asymmetrically damage the US economy,” said Francesco Pesole, an FX strategist at ING.
While some of the tariff impact on others could be negotiated away, there was a risk that the US was “left with little revenue and only the backlash of higher uncertainty and weaker consumer sentiment”, he added.
The declines came after the White House on Wednesday revealed sweeping 10 per cent tariffs on nearly all US imports, and levies of 20 per cent on EU goods and 34 per cent on Chinese goods, on top of tariffs already announced.
Shares of export-focused companies led a stock sell-off in Europe and Asia, while US stock futures tumbled, as markets reeled from Trump’s full-blown assault on the global trade order.
The Stoxx Europe 600 was down 1.9 per cent in early trading, with falls led by consumer cyclicals and financial stocks as investors fretted about the economic fallout from tariffs against European nations, and their retaliation.
“It’s worse than expected, there’s no sugar-coating it,” said Zhikai Chen, head of global emerging market equities at BNP Paribas Asset Management.
Retailers Adidas and Puma were down 10 per cent and 9 per cent respectively, while banking group Standard Chartered lost 8 per cent. Carmaker Volvo was down nearly 10 per cent.
On Wall Street, futures pointed to a 3.3 per cent opening decline for the S&P 500, piling further pain on a market that had already been pushed into a correction this year by Trump’s tariff threats and a sell-off in the tech sector.
US bank stocks were poised to open lower, with Goldman Sachs down 4 per cent in pre-market trading and JPMorgan down more than 3 per cent. Chipmaker Nvidia was nearly 5 per cent lower, as tech stocks extended their recent falls.
“The trade war is a bit of a mess”, said Stephen Jen, chief executive officer of asset manager Eurizon SLJ. He said the shock would be “stagflationary for the US and elsewhere, and the financial markets will need to cope with this shock” until some of the tariffs are reduced.
Strategists said the scale of the dollar’s fall — with the currency failing to perform its traditional role as a haven in times of stress — reflected growing worries about US institutional strength.
“The US administration’s approach to calculating the tariffs raises serious concerns about policy credibility, undermining [the dollar],” said George Saravelos, at Deutsche Bank.
The euro rose 2.1 per cent to $1.109, on track for its biggest one-day rise since 2022.
Elsewhere in global stocks, the UK’s FTSE 100 was down 1.3 per cent. Japan’s Topix closed 3.1 per cent lower and Hong Kong’s Hang Seng index fell 1.5 per cent.
Markets were reordered according to the level of pain meted out by the new trade levies. Vietnam’s stock index was down nearly 7 per cent, the worst-performing primary index tracked by Bloomberg, after the country was hit with a 46 per cent tariff, one of the largest.
The Japanese yen rallied 1.9 per cent as traders looked for protection amid the dollar’s fall.
Government bonds surged as investors looked for safety. Ten-year US Treasury yields fell 0.13 percentage points to 4.06 per cent as the price of the debt jumped.
Traders are now pricing three or four quarter-point interest rate cuts from the Federal Reserve to shore up the US economy, up from three on Wednesday, according to levels implied by swaps markets.
“Even if tariffs are ultimately reduced by year-end, the near-term shock and associated uncertainty is likely to drive a near-term slowdown in the US economy and reduce full-year 2025 growth to closer to or below 1 per cent,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
The gold price fell back to $3,108 a troy ounce after surging overnight to a record high during Asian trading. Economically sensitive commodities fell, with Brent crude oil prices sliding 4 per cent.
Jim Reid, at Deutsche Bank, said investors had been “too optimistic” about comments before the announcement from Treasury secretary Scott Bessent that the initial levies would be a cap.
“Definitely it’s more dramatic than expected,” said Ding Shuang, chief greater China economist at Standard Chartered. “Even for China the additional [tariff] increase is higher than expected.”
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