TLDR:
- Dollar index fell to lowest level since October amid tariff concerns
- Trump’s new reciprocal tariffs effective April 9 caused traders to seek other safe havens
- Deutsche Bank warns of potential “broader confidence crisis” for the dollar
- Treasury yields dropped significantly, hitting 4% on the 10-year note
- Bitcoin holding support at $82,000 despite economic uncertainty
The U.S. dollar experienced a sharp decline following President Donald Trump’s announcement of new reciprocal tariffs. The dollar index (DXY), which measures the U.S. currency against six others, fell 1.78% to $101.96 on Thursday, reaching its lowest level since early October.
This marked decline comes as investors shifted toward other safe-haven assets like the Japanese yen and Swiss franc. The euro, which is the largest component in the dollar index, gained 1.5% to reach a six-month high of $1.1021.
Traders are reacting strongly to the tariff announcement, with the new measures set to take effect on April 9. These tariffs have prompted market speculation about multiple interest rate cuts by the Federal Reserve this year, further weighing on the U.S. currency.
Currency Shifts and Market Concerns
Several major currencies showed gains against the dollar during this period. The Swiss Franc led with a 2.14% increase, followed by the Euro at 1.96% and the Japanese Yen at 1.80%.
The British Pound also rose 1.26% against the dollar. Even the Australian and Canadian dollars showed modest gains of 0.62% and 0.58% respectively.
Deutsche Bank expressed worry in a research note about the situation. “Given the dramatic nature of the moves, we are becoming increasingly concerned that the dollar is at risk of a broader confidence crisis,” the bank stated.
The research note continued with a stark assessment.
“The safe haven properties of the dollar are being eroded and this is imposing a cost on unhedged dollar holdings.”
Deutsche Bank’s head of FX Research, George Saravelos, pointed to specific concerns about the Trump administration’s approach. He suggested the tariff implementation has damaged American policy credibility due to the disconnect between official communications and the final outcome.
Saravelos also noted that Treasury Secretary Scott Bessent’s focus on fiscal tightening shortly after the tariff announcement further undermined U.S. growth expectations. This comes at a time when other parts of the world appear ready to increase fiscal support.
Bond Market Reaction and Bitcoin Implications
The 10-year Treasury yield fell dramatically, dropping as much as 16 basis points to 4.027% on Thursday. This represents the lowest level since October and signals strong demand from buyers seeking safety.
This decline in Treasury yields comes as investors react to growing concerns over the global trade war and dollar weakness. The yield briefly touched 4.0%, down significantly from 4.4% just a week earlier.
The tariff situation creates what some experts call a “supply shock.” Axel Merk, chief investment officer at Merk Investments, explained that tariffs reduce the availability of goods and services due to rising prices, causing an imbalance relative to demand.
This effect becomes stronger if interest rates are declining, potentially creating inflationary pressure. Even if Bitcoin isn’t viewed specifically as an inflation hedge, fixed-income investments become less attractive in such conditions.
While the economic uncertainty might seem negative for Bitcoin at first glance, the cryptocurrency has shown resilience. Despite market turbulence, Bitcoin maintained its $82,000 support level, which some analysts view as an encouraging sign.
Lower returns from traditional fixed-income investments may encourage allocations to alternative assets, including cryptocurrencies. Over time, traders might reduce their exposure to bonds, particularly if inflation rises.
The trade war could also lead to a gradual shift away from the U.S. dollar, particularly among countries feeling pressured by its dominant role. While no one expects Bitcoin to become a major component of national reserves, any movement away from the dollar could strengthen Bitcoin’s long-term potential.
Several Asian nations collectively hold $2.63 trillion in U.S. Treasuries. If these regions choose to retaliate against U.S. trade measures, bond yields could reverse their downward trend, increasing borrowing costs for the U.S. government and potentially weakening the dollar further.
Investors are now turning their attention to Friday’s nonfarm payrolls report. This data could provide further insight into the Federal Reserve’s next policy move and influence market directions in the coming weeks.
