Dollar Plunges 2.2% Amid Trump Tariffs, Recession Fears

The U.S. dollar experienced a significant decline on Friday as markets grappled with the economic repercussions of President Trump's newly imposed tariffs. This development occurred just hours before the anticipated release of the crucial U.S. jobs report, adding to the market's volatility. The tariffs, which include a 10% baseline import tariff and higher duties on key trading partners, have sent shockwaves through global markets. The dollar index (DXY) plunged 1.9% on Thursday, its worst day since November 2022, and lost another 0.3% in early Friday trading. With escalating trade tensions and growing speculation of a stagflationary scenario, confidence in the dollar is fading fast.

Markets were still reeling from the shock of Trump’s announcement — a 10% baseline import tariff and higher duties on key trading partners like Japan (24%) and the EU (20%). The safe-haven yen rallied, heading for a six-month high, while the Swiss franc and euro gained momentum, underscoring investors’ growing fears of a global recession. The offshore yuan dropped 0.5% to 7.2450, while Australia and New Zealand’s currencies—often seen as barometers of risk appetite—plunged 1.38% and 1.28% respectively. Analysts warn that the impact on China, already facing combined duties of 64%, could be devastating.

Traders have rapidly priced in four Fed rate cuts for 2025 — one each in June, July, October, and December — in response to mounting recession fears. At the same time, bets on further Bank of Japan tightening have evaporated, signaling a flight to lower-risk assets. All eyes are now on the U.S. non-farm payrolls report, expected to show a slowdown in job growth to 135,000 jobs in March, down from 151,000 in February. The results will offer key insights into the health of the labor market and the Fed’s next steps.

Adding to the turmoil, analysts are warning of a crisis of confidence in the dollar. “Major shifts in capital flow allocations could take over from currency fundamentals,” one report stated, hinting at possible disorderly moves in foreign exchange markets. The euro has gone up to $1.1088, while sterling is held at $1.3101, reflecting broader weakness in the greenback. Even cryptocurrencies like Bitcoin remain near $83,000, despite chaos in the markets.

The dollar taxes have impacted are echoing across global markets, challenging the greenback’s status as the reserve currency. As trade wars have increased, a slowdown of the U.S. economy, and aggressive Fed rate cut expectations, investors are increasingly seeking refuge in safe-haven assets. With the U.S. jobs report coming up, it’s unclear which way the dollar will go in the short term. People are waiting to see if the Federal Reserve will take action or not. One thing is certain—2025 has brought a new wave of uncertainty when it comes to the value of the dollar and global currencies.