Dollar retreats further on trade war woes
The U.S. dollar continued its decline on Wednesday, reflecting ongoing unease over trade tensions and the uncertainty spurred by the Trump administration’s latest moves. Confidence in the world's largest economy is wavering, and that sentiment is weighing heavily on the greenback.
At 04:40 ET (08:40 GMT), the Dollar Index—which measures the dollar against six major currencies—dropped 0.5% to 99.452. This marks a decline of over 8% so far this year.
Recent actions by the Trump administration have intensified the trade war with China, the two largest economies. President Trump has launched an investigation into new tariffs on all major U.S. critical mineral imports, mainly sourced from China, further deepening global trade uncertainties. Earlier this month, he initiated a bitter trade conflict by raising tariffs on Chinese goods to a total of 145%, prompting China to hit back with a 125% duty on U.S. products.
Market watchers are keeping an eye on data about China’s U.S. Treasury holdings for February, hoping to see if Beijing is offloading its assets due to the escalating trade conflict. “We doubt there will be a significant change in China’s $760 billion holdings, but if there is, it could trigger more U.S. Treasury and dollar selling,” noted analysts at ING.
In addition, attention is focused on U.S. retail sales data, which will be released later today. This is followed by a speech from Federal Reserve Chair Jerome Powell. If Powell’s remarks maintain a similarly dovish tone to those of Fed Governor Christopher Waller on Tuesday, it might further pressure the dollar, ING added.
Meanwhile, the euro continued to recover, with EUR/USD climbing 0.7% to 1.1364. After last week’s surge to a three-year high of 1.1474, the euro is drawing renewed support. Eurozone inflation data, set to be released later, is expected to show a slight cooling to 2.2% annual growth in March from 2.3% in February. This may prompt the European Central Bank to agree on a 25-basis-point rate cut, lowering the deposit rate to 2.25%. “EUR/USD might have already hit a short-term low and could test the 1.1500 level soon,” said ING.
The British pound also strengthened, trading 0.5% higher at 1.3283 against the dollar, nearing a six-month high. Despite lower inflation in the UK—with the consumer price index falling to 2.6% in March from 2.8% in February—the pound benefits from a soft dollar environment. Analysts expect that the Bank of England might consider a rate cut at its May meeting. ING mentioned that while the current focus is on the soft dollar, the pound may reach last year’s high of 1.3430 in the near future.
Yuan slips lower despite strong growth data
In Asia, USD/JPY fell by 0.5% to 142.49, as the Japanese yen remained in demand as a safe haven. Meanwhile, USD/CNY inched up 0.1% to 7.3236. Ongoing trade tensions between the U.S. and China continue to put pressure on the Chinese currency.
Chinese economic data for the first quarter of 2025 came in above expectations. China’s GDP grew by 5.4% year-on-year, surpassing the forecast of 5.2%. In addition, industrial production in March surged by 7.7%, far exceeding estimates, as producers rushed to export ahead of steep U.S. tariffs scheduled for April 2. Retail sales were also up by 5.9%, buoyed by Beijing’s stimulus efforts to boost consumption.