US Dollar Faces Selloff as Tariff Shock Stokes Recession Worries

The US dollar extended its losses on Friday, April 5, as traders braced for the economic fallout from President Donald Trump’s sweeping tariffs on global imports. The US Dollar Index (DXY) fell below 102, after dropping nearly 2% in the previous session—its steepest single-day decline in over a year.

Trump’s Tariffs Spark Market Jitters

Trump’s decision to impose a baseline 10% tariff on all imports starting April 5 rattled financial markets, especially as additional steep tariffs were slapped on China (54%), the European Union (20%), Japan (24%), India (27%), and Vietnam (46%).

The aggressive move stoked fears of a global trade war, slower economic growth, and heightened inflation, weighing on the greenback.

Traders Bet on Aggressive Fed Rate Cuts

With concerns that Trump’s tariffs could stall US economic growth and push inflation higher, markets are now expecting the Federal Reserve to cut interest rates four times in 2025, with the first 25-basis-point cut anticipated in June.

• Higher tariffs mean costlier imports, which could increase inflation and weigh on consumer spending.

• Weaker economic growth may force the Fed to act, prompting aggressive rate cuts to support the economy.

• Lower interest rates typically weaken the US dollar, as investors seek higher-yielding assets elsewhere.

Mixed Signals from Trump Add to Uncertainty

Initially, Trump’s firm stance on trade tariffs added to recession fears. However, later in the day, he signaled openness to negotiations with key trading partners, contradicting earlier statements from his aides.

This flip-flopping has added to market volatility, with investors unsure whether Trump will stick to his aggressive trade policies or soften his stance in response to market turmoil.

US Jobs Report in Focus

Traders are now closely watching the US nonfarm payrolls report, set for release later on Friday.

• Stronger-than-expected job growth could support the dollar by delaying Fed rate cuts.

• Weaker employment data could further weigh on the greenback, reinforcing expectations of an economic slowdown.

Outlook: Dollar Weakness to Persist?

With trade war risks, economic uncertainty, and expectations of Fed rate cuts dominating the outlook, analysts believe the US dollar may remain under pressure in the near term.

For now, investors will watch for further developments on trade negotiations and key economic data releases to gauge the dollar’s next moves.

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