The US dollar started the week on a weak note, continuing its decline from last week as concerns over a slowing US labour market and global trade tensions drove investors towards safe-haven currencies like the yen and Swiss franc.
Trade War Fears and Market Reaction
Uncertainty over US trade policy has shaken investor confidence, with President Donald Trump imposing tariffs on key trading partners while delaying some for a month. This, coupled with fears of an economic slowdown, has led investors to reduce net long dollar positions from $35.2 billion in January to $15.3 billion.
Risk-averse traders have shifted towards the Japanese yen and Swiss franc, pushing both to multi-month highs. On Monday, the yen strengthened by 0.5% to 147.27 per dollar, while the Swiss franc reached a three-month high of $0.87665.
The euro climbed 0.3% to $1.0867, benefiting from Germany’s fiscal reforms. The US dollar index stood at 103.59, near its four-month low after last week’s 3% decline—the biggest weekly drop since November 2022.
US Labour Market and Fed Rate Outlook
Friday’s nonfarm payroll report showed 151,000 jobs added in February, falling short of forecasts (160,000) and indicating cracks in the labour market. The unemployment rate edged up, and labor force participation declined, raising concerns that job conditions could weaken further in the coming months.
Citi strategists predict the Federal Reserve may cut interest rates in May, citing weaker consumer spending and potential government job losses. Markets are currently pricing in 75 basis points of rate cuts in 2025, with a June cut fully expected.
Trump’s Trade Policy Adds Uncertainty
President Trump, in a Fox News interview, declined to predict if the US economy will enter a recession, stating, “There is a period of transition… we’re bringing wealth back to America.” Market analyst Tony Sycamore warned that such comments could increase volatility in risk assets in the coming weeks.
Global Currency Movements
- British Pound (GBP/USD): Up 0.16% at $1.2941
- Australian Dollar (AUD/USD): Up 0.14% at $0.6315
- New Zealand Dollar (NZD/USD): Last traded at $0.57225
Investors remain cautious as they navigate an uncertain economic landscape, with upcoming Fed decisions and trade policies likely to shape market movements in the weeks ahead.
