The dollar fell to its lowest in three months on Wednesday, March 5, due to a trade war started by US President Donald Trump, who also announced counter-tariffs in his first speech to Congress, Reuters reports.
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Currency movements were volatile as investors worried about the impact of escalating global trade tensions on the global economy.
In his address to Congress, Trump said new tariffs would go into effect on April 2, including “mirror tariffs” and non-tariff measures aimed at balancing long-standing trade imbalances.
The dollar initially rose slightly as Trump spoke but then fell to 105.46 against major currencies, its lowest since Dec. 6, 2024.
Sterling took advantage of dollar weakness to hit a three-month high of $1.28025.
Investors sold the dollar as they grew increasingly concerned about the growth prospects of the world's largest economy, which is already showing signs of slowing.
“Rising inflation expectations and tariff concerns threaten the soft landing of the U.S. economy,” said Boris Kovacevic, global macro strategist at Convera.
This macro-policy story highlights the US's move toward growing risks of stagflation, he said.
“Of course, higher tariffs are theoretically positive for the dollar. However, investors are looking beyond short-term safe-haven flows and are concerned about a longer-term slowdown in growth,” he said.
The Canadian dollar fell 0.23% to C$1.4425, while the Mexican peso recovered some of its losses to trade at C$20.6141 per dollar.
The Japanese yen also showed positive dynamics, increasing by 0.15% to 149.58 yen per dollar.
The euro rose to a three-month high of $1.0639 on news that German parties agreed to create a 500 billion euro infrastructure fund and reform borrowing rules that would mean a big increase in military spending and economic stimulus.
Trump's Trade Wars
Treasury wrote that on March 4, 2025, Trump imposed 25% tariffs on most Canadian and Mexican imports and doubled the existing 10% tariff on imports from China to 20%, which will affect an annual import volume of about $1.5 trillion.
In response to new U.S. tariffs, Canada is imposing a 25% tariff on $155 billion worth of U.S. goods. Canadian Prime Minister Justin Trudeau explained that Canada will immediately impose tariffs on $30 billion worth of U.S. goods. The remaining $125 billion worth of goods will be imposed in 21 days.
Trudeau also added that Canada would file a case at the World Trade Organization regarding the new U.S. tariffs. In the meantime, Canadian tariffs will remain in place until U.S. tariffs are lifted.
China said it would impose additional tariffs of 10-15% on some imports from the United States from March 10.
Trump then responded to Canada's decision to impose tariffs on American goods in response to new US trade tariffs. The US leader threatens to double the tariffs.
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- Dollar Currency