NEW YORK: The dollar staged a broad retreat on Thursday, as investor gloom over the lack of progress towards defusing the US-China trade war reasserted itself following an interlude of optimism the previous day.
US assets, including the dollar, rallied on Wednesday after US President Donald Trump backed down from threats to fire the head of the Federal Reserve and appeared to soften his stance on China.
Treasury Secretary Scott Bessent said separately that the de facto embargo on US-China trade was unsustainable, but that the US would not move first in lowering its levies of more than 100% on Chinese goods.
By Thursday, those dollar gains had unravelled. China said there had been no negotiations on the economy and trade and it urged the US to lift all unilateral tariff measures if it really wished to resolve the issue, leaving investors roughly where they were earlier in the week in terms of clarity.
The yen led the charge higher, leaving the dollar down 0.71% on the day at 142.395, but still above the 140-mark breached last week.
“There were hopes of a thaw in the US-driven trade dispute with absolutely everyone,” Trade Nation strategist David Morrison said.
“(Trump) softened his tone towards China, calling on them to come and negotiate. But it turns out it takes two to tango, and for now, the Chinese leadership has decided to let the Trump administration stew in its own mess,” he added.
The dollar has been the biggest casualty of Trump’s on-off tariffs, dropping by 4.8% in April so far alone, which would mark its largest monthly decline since November 2022.
Investors had been shaken over the last few days when Trump made a series of verbal attacks on Fed Chair Jerome Powell over his reluctance to cut interest rates until justified by the data.
Such has been the investor pullback from the dollar that it is on course for its worst start to the year against a basket of currencies since the 1970s, according to LSEG data.
“A nascent relief rally in markets is stalling out as hopes for a thaw in the US-China trade war unravel amid contradictory signals from officials,” said Karl Schamotta, chief market strategist at Corpay, in a research note.
“The dollar is coming under selling pressure once again, Treasury yields are inching lower and equity futures are cruising toward renewed losses at the North America open.”
The Swiss franc, which is around its strongest against the dollar in more than a decade as a result of hefty safe-haven flows this month, rose, leaving the US currency down 0.58% on the day at 0.82565 francs.
The pound rose 0.53% to $1.332. UK finance minister Rachel Reeves said on Thursday she was confident Britain could reach a trade deal with the United States.
Bitcoin tracked the dollar lower, falling 0.84% on the day to $92,896. Meanwhile, Trump’s meme coin surged 33% overnight after the online promotion of a gala dinner with the president for the top 220 buyers of the $TRUMP coin. It is still only worth roughly a quarter of what it was at its launch in January.
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