The U.S. dollar strengthened on Friday, while the euro slipped further from a five-month high, as global trade tensions escalated, exacerbating fears of a sharp economic slowdown.
U.S. President Donald Trump’s threat to impose a 200% tariff on European wine, cognac, and other alcohol imports heightened volatility across markets. This warning came in response to the European Union’s announcement to levy tariffs on American whiskey and other goods next month, retaliating against Trump’s 25% tariffs on steel and aluminum that were enacted earlier this week.
The intensifying trade conflict between the U.S. and the EU has raised concerns about a potential global recession, contributing to a sharp decline in the S&P 500, which entered correction territory on Thursday. Investors sought refuge in U.S. Treasuries and other safe-haven assets.
The euro weakened to $1.0847, moving further away from Tuesday’s five-month peak. The EU-U.S. trade dispute, coupled with struggles in Germany over a large spending proposal, contributed to the euro’s decline. Additionally, optimism for a ceasefire between Ukraine and Russia waned as Moscow expressed conditional support for a U.S. peace proposal.
As the euro weakened, the dollar gained strength, pushing further away from Tuesday’s low of 103.21, its lowest level since mid-October. However, there remains uncertainty surrounding the outlook for the U.S. and the broader global economy.
“I think the million-dollar question with any asset class is… where do we find the news that will shift risk sentiment? At this point, it’s unclear,” said Tony Sycamore, a market analyst at IG.
Since reaching a six-month high in January, the dollar has fallen more than 5%, losing ground against the euro, sterling, and yen as the U.S. economy’s exceptionalism narrative began to weaken. A potential U.S. government shutdown added to the uncertainty, though U.S. Senate Democrat Chuck Schumer signaled support for a Republican stopgap funding bill on Thursday, which could avert a shutdown.
The British pound hovered around $1.2945 ahead of the release of January’s GDP figures, after retreating from a recent high of $1.2990, its strongest level against the dollar since early November.
The Japanese yen reversed some of its recent gains, with the dollar rising 0.35% to ¥148.32. Earlier in the week, the yen had strengthened to ¥146.545 amid safe-haven buying and expectations that the Bank of Japan (BOJ) might raise interest rates later this year. Market participants were also focused on the first-round results of Japan’s spring wage negotiations, which could encourage the BOJ to continue normalizing monetary policy.
The dollar index, which tracks the greenback against a basket of currencies including the euro and yen, rose 0.1% to 103.95 following two consecutive days of gains.
The Canadian dollar traded at 1.4440 per U.S. dollar, as Canada remained caught in the crossfire of the tariff dispute.
The Australian dollar steadied at $0.6284 after a drop on Thursday, while the New Zealand dollar edged up 0.1% to $0.5702.
In the cryptocurrency market, Bitcoin saw a 1.32% increase, trading at $81,410.36.
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