The dollar index (DXY00) tumbled by -2.19%, hitting a six-month low as concerns mount over President Trump’s sweeping new reciprocal tariffs. Investors fear that these tariffs could trigger a trade war, disrupt the economy, and push the Federal Reserve toward an interest rate cut.
Further pressuring the dollar, the 10-year T-note yield sank to a 5-1/2 month low, weakening the dollar’s interest rate differentials. Analysts also warn that the dollar may face a confidence crisis if investors begin offloading U.S. assets in response to the tariff policy.
Weak Economic Data Fuels Dollar Decline
The dollar’s decline accelerated following a sharp drop in the US March ISM services index, which fell by -2.7 points to a nine-month low of 50.8, below expectations of 52.9.
Meanwhile, the US weekly initial unemployment claims fell unexpectedly by -6,000 to a seven-week low of 219,000, better than the expected 225,000. However, continuing claims rose by +56,000 to 1.903 million, marking a 3-1/3 year high, signaling difficulties for job seekers reentering the workforce.
The US February trade deficit narrowed to -$122.7 billion from -$130.7 billion in January, better than forecasts of -$123.5 billion.
Euro Soars as Dollar Plunges
The EUR/USD pair surged by +2.26% to a six-month high, driven by the dollar’s decline and stronger-than-expected economic data from the Eurozone.
- The Eurozone March S&P composite PMI was revised upward by +0.5 to 50.9, a seven-month high.
- The Eurozone February PPI rose by +3.0% year-over-year, marking its fastest pace of increase in nearly two years.
The ECB’s March 6 meeting minutes revealed that policymakers are considering a rate cut or a pause at the April 17 policy meeting, depending on incoming data. Markets currently price in a 72% probability of a -25 basis point rate cut.
Yen Strengthens as Safe-Haven Demand Surges
The USD/JPY pair dropped -2.38%, with the yen hitting a six-month high as investors fled to safe-haven assets following the selloff in global equities.
- The Japan March Jibun Bank services PMI was revised upward by +0.5 to 50.0 from 49.5, reinforcing optimism over Japan’s economic outlook.
- The sharp drop in US Treasury yields also supported the yen, making it more attractive relative to the dollar.
Gold and Silver Prices Plunge
Despite trade war fears and safe-haven demand, gold and silver prices collapsed, with:
- June gold (GCM25) down -$28.10 (-0.89%) to a one-week low.
- May silver (SIK25) plunging -$2.175 (-6.28%) to a one-month low.
Market analysts attribute the declines to:
- Investors liquidating profitable gold and silver positions to cover losses in equity markets.
- Falling inflation expectations, as the US 10-year breakeven inflation rate hit a three-week low.
- Concerns that US tariffs will trigger a global trade war, potentially slowing demand for industrial metals like silver.
Geopolitical Risks Keep Precious Metals in Focus
Despite the selloff, geopolitical tensions continue to support safe-haven demand for gold and silver:
- Israel resumed airstrikes on Gaza, ending a two-month ceasefire with Hamas.
- The US continued airstrikes on Yemen’s Houthi rebels.
Key Events to Watch
Investors are closely monitoring upcoming economic events, including:
- Friday’s March nonfarm payrolls report, expected to show +138,000 jobs added.
- Fed Chair Powell’s speech on Friday, where he will discuss the economic outlook at the Society for Advancing Business Editing and Writing Conference.
- The May 6-7 FOMC meeting, where markets currently price in a 34% chance of a -25 basis point rate cut.
