The U.S. dollar continued its downward slide on Wednesday as trade tensions stirred by the Trump administration’s latest moves cast fresh doubts on the stability of the American economy. Meanwhile, the British pound edged higher despite weaker than expected inflation data.
As of 04:40 ET (08:40 GMT), the U.S. Dollar Index which compares the greenback to a basket of six major currencies had declined by 0.5% to 99.452. This brings its year to date loss to over 8%.
Trade War Worries Push Dollar Lower
Investor sentiment toward the dollar took another hit after President Donald Trump ordered a review of tariffs on critical mineral imports, many of which are sourced from China. This development is the latest salvo in an ongoing trade dispute between the world’s two largest economies.
Earlier this month, the White House hiked tariffs on Chinese goods to a cumulative rate of 145%, prompting Beijing to retaliate with a 125% levy on U.S. exports. Market participants are now awaiting data on China’s U.S. Treasury holdings for February to gauge whether China is beginning to divest from American assets in response.
Analysts at ING noted that while they don’t expect significant changes in China’s $760 billion stake in U.S. Treasurys, any substantial reduction could trigger further selling of both U.S. bonds and the dollar.
Traders are also eyeing upcoming U.S. retail sales figures and an anticipated speech by Federal Reserve Chair Jerome Powell. His remarks come after Fed Governor Christopher Waller delivered a surprisingly dovish message on Tuesday, contributing to the market’s current outlook.
ING added that “if Powell echoes a similar dovish stance especially in light of falling long-term inflation expectations it could intensify the pressure on the greenback.”
Euro Gains as Investors Turn Optimistic
The euro posted gains as well, with EUR/USD up 0.7% to 1.1364. The single currency rebounded after briefly pulling back from last week’s three-year high of 1.1474.
Inflation data from the eurozone, expected later in the day, is forecast to show a slowdown to 2.2% annual growth for March, slightly down from February’s 2.3%. This could strengthen the case for the European Central Bank to implement a 25 basis point rate cut during its Thursday meeting, potentially lowering the deposit rate to 2.25%.
According to ING, “EUR/USD may have already formed a short-term bottom and is poised to revisit the 1.1425 zone, possibly testing 1.1500 if momentum continues.”
Sterling Rises Amid Soft U.K. Inflation
The British pound also climbed, with GBP/USD advancing 0.5% to 1.3283, nearing a six-month peak. This move came even as the U.K. reported a cooling of inflation in March.
The Consumer Price Index (CPI) rose 2.6% year over year, slowing from 2.8% in February and coming in below the 2.7% forecast by analysts. This weaker inflation print has increased expectations that the Bank of England might reduce interest rates in its May policy meeting.
In its March meeting, the BoE left rates unchanged at 4.5%, with a vote of 8-1 in favor of holding, and only one member supporting a cut. Despite the soft inflation reading, the pound’s strength appears more linked to the dollar’s weakness.
“Sterling is currently riding the wave of the broader dollar selloff and could soon test last year’s high at 1.3430,” ING commented.
Asian Markets: Yuan Softens While Yen Finds Support
In Asian trading, the Japanese yen found support as a safe-haven asset, pushing USD/JPY down 0.5% to 142.49. Demand for stable assets remains elevated amid global uncertainty.
The Chinese yuan, on the other hand, edged slightly lower. USD/CNY rose by 0.1% to 7.3236, as ongoing tensions with the U.S. continued to cast a shadow over the currency.
China released stronger than expected economic data for the first quarter of 2025. The country’s GDP expanded by 5.4% year on year, surpassing the forecasted 5.2%. Industrial production surged by 7.7% in March, beating expectations, as exporters rushed to ship goods ahead of new U.S. tariffs set for April 2. Retail sales also posted a healthy 5.9% gain, supported by domestic stimulus measures aimed at boosting consumer activity.
