The US dollar slid on Friday and was set for its biggest weekly loss in more than a year after US President Donald Trump suggested a softer stance on tariffs against China, adding to uncertainty about the trade policy that kept equity markets on edge.
Trump told Fox News on Thursday that his recent conversation with Chinese President Xi Jinping (習近平) was friendly and he thought he could reach a trade deal with China.
“We have one very big power over China, and that’s tariffs, and they don’t want them, and I’d rather not have to use it, but it’s a tremendous power over China,” he said.
Photo: Reuters
The US dollar dropped as much as 0.8 percent against a basket of currencies on Friday, before narrowing losses at the end of the day to be down 0.65 percent, but it still had its biggest weekly loss since November 2023, having lost 1.8 percent since Monday.
Some analysts warned that the dollar could rise again if the US tariff and interest rate policies shifted.
“We think that the dollar has further to climb,” said Simon MacAdam, deputy chief global economist at Capital Economics.
“Its appreciation so far has reflected both the strength of the economic data in the US relative to peer economies and investors’ assessment of Trump’s policies, both of which have contributed to a shift in interest rate differentials that has been favorable to the dollar,” he added.
The MSCI index for world stocks ended little changed, while stocks on Wall Street were lackluster. The S&P 500 index was down 0.3 percent, the Dow Jones Industrial Average lost 0.3 percent and the NASDAQ Composite shed 0.5 percent.
China’s stock markets and currency rallied on the back of Trump’s comments, leaving the blue chip index up 0.8 percent and the yuan strengthened against the dollar, which fell 0.7 percent to 7.239 in the offshore market.
Oil prices stabilized and pared losses that were incurred after Trump said he would be asking Saudi Arabia and OPEC to lower oil prices.
US crude futures edged higher to US$74.66 a barrel and Brent crude was up 0.3 percent at $78.50.
Amelie Derambure, senior multi-asset portfolio manager at Amundi in Paris, said Trump’s pro-US policies require lower oil prices.
“These types of policies could also benefit other players in the world, like Europe for instance, if we have a lower oil price that’s going to benefit Europe as well — so at last there is something that he wants to implement that is not detrimental to Europe,” she said.
In currency markets, the yen gained 0.2 percent against the dollar to 155.7 after the Bank of Japan raised interest rates to their highest since the 2008 global financial crisis.
Bank of Japan Governor Kazuo Ueda said the central bank would keep raising interest rates as wage and price increases broaden, adding that there was scope to push up borrowing costs further before they reach levels deemed neutral to the economy.
US Treasury yields, which have retreated from January’s highs as some of the worry about a renewed spike in inflation has faded, were steady on Friday.
The US 10-year Treasury yield edged lower to 4.6194 percent, below last week’s 14-month high of 4.809 percent.
The European Central Bank and the US Federal Reserve are due to meet next week as policymakers digest early moves of the Trump administration.
INTEREST RATES
The Fed is expected to keep interest rates on hold, but the larger story unfolding would be how the central bank confronts early moves by Trump that are likely to shape the economy this year, including demands the Fed continue lowering borrowing costs.
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