(Bloomberg) -- The dollar extended losses after its biggest plunge in three years while stocks and bonds sold off as a worsening global trade war eroded an already fragile appetite for risk. The euro hit a three-year high.
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Asian stocks were on track for their third week of declines as market relief turned to angst after the White House clarified US tariffs on China rose to 145%. US Treasuries extended the week’s slide. In a sign investors are seeking havens and non-US alternatives, the euro soared as much as 1.6% and Swiss franc touched the highest level in a decade. Gold set a new high. Equity-index futures for Europe and the US advanced.
Just a day after financial markets cheered President Donald Trump’s decision to delay some of his sweeping tariffs, the selloff suggested skepticism about the planned talks with US trade partners and fear of escalating tensions with China. The much-vaunted America-first trade — buying up assets that win when the US outperforms the rest of the world — is reversing on concern that the steepest increase in levies in a century will push the world’s biggest economy into a recession.
“The repeated changes in President Trump’s tariff stance has undermined investor confidence in the US government and economy,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “The selloffs in US equities, bonds and the dollar suggest market participants are reallocating their portfolios away from US dollar assets.”
The currency weakness extended into Asian trading Friday, after the Bloomberg Dollar Spot Index closed down 1.5% at the end of trading in New York Thursday. The options premium paid to hedge a dollar decline versus a basket of peers over the next week reached the highest since March of 2020, relative to positioning for gains.
Emerging market currencies such as the Korean won and the Thai baht rallied against the dollar. Gains for the yen pushed the Japanese currency to around 143 per dollar on Friday, a level not seen since October.
“So you lose money on bonds, you lose money on the currency and you lose money on the equity market,” said Alain Bokobza, head of global asset allocation at Societe Generale. “That’s a wake up call for all global managers that they need to re-diversify the portfolio in what we call the great rotation.”
Shares in China and Hong Kong rose on Friday on expectations the government will come out with more economic stimulus. The country’s top leaders were due to meet in Beijing Thursday to discuss the measures.
News of the higher levy on Chinese goods appeared to outweigh signals from Trump that the US is close to a first deal on tariffs, without naming the country.
“The Trump administration’s stance has evolved from an all-out trade war against everyone, to a concentrated trade war against China,” said Nicolas Oudin of Gavekal Research. “Most investors believe that China shot itself in the foot by retaliating. The view from Beijing is different. Many in China read the ‘Trump fold’ as a sign of US weakness, and therefore as a validation of China’s decision to escalate.”
China is likely to defy expectations from some on Wall Street of big yuan devaluations against the dollar, opting instead to only moderately weaken the managed currency, according to Allan von Mehren, the chief analyst at Danske Bank.
The nation’s daily reference rate for the yuan edged slightly up on Friday, after weakening for six straight sessions, amid the dollar’s losses.
As Trump unleashes an all-out assault on global trade, the status of US Treasury bonds as the world’s safe haven is increasingly coming into question. Yields, especially on longer-term debt, have surged in recent days while the dollar has plunged.
US government debt resumed a selloff from earlier in the week even as a solid US sale of 30-year Treasuries signaled appetite for bonds. On Friday, the yield on the 10-year note rose as much as six basis points, adding to the nine on Thursday. China may be selling Treasuries in retaliation against higher US tariffs, according to Ataru Okumura, a senior interest-rate strategist at SMBC Nikko Securities.
The worsening tariffs spat is already affecting corporations. Audi has suspended deliveries to the US and the bigger-than-expected import tax has also prompted Japan’s Nintendo Co. to delay pre-orders for its long-awaited Switch 2 gaming console. From Ray-Bans to wigs, US buyers may see unexpected price rises.
Retailer Five Below Inc. has asked vendors to turn away products waiting for shipment in China before they set off for the US.
In commodities, oil headed for a second weekly loss, while gold extended gains.
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This story was produced with the assistance of Bloomberg Automation.
--With assistance from Richard Henderson, Matthew Burgess, Toby Alder, Catherine Bosley, Abhishek Vishnoi and Joanne Wong.
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