- Bloomberg Dollar Index hits six-month low following China’s retaliatory tariffs
- Traders turn bearish on USD for first time in five years; risk reversals flip
- Safe havens like yen, Swiss franc, and gold see major inflows
- S&P 500 tumbles 3.5%, euro surges to three-year high as Fed rate cut bets rise
April 11, 2025 — The US dollar extended its steepest selloff in over two years on Friday, diving to a six-month low as markets reacted sharply to China’s sweeping tariff hikes on all American goods. The move, effective April 12, increases duties from 84% to 125%, dramatically escalating tensions between the world’s two largest economies and accelerating a broad retreat from US assets.
The ICE US Dollar Index fell 1.03% to 99.83, marking a rare and significant break below the psychologically important 100 level. The bearish turn was mirrored across the currency markets, with one-year risk reversals — a gauge of directional sentiment — flipping in favor of dollar downside exposure for the first time in five years.
Flight to Quality Gains Momentum
In a classic risk-off shift, investors piled into safe-haven assets. The Japanese yen surged 1.6% to 142.18 against the greenback — its strongest showing since September 2024. Meanwhile, the Swiss franc rocketed to 0.8113 per dollar, a level unseen since early 2015, and gold prices hit a record high, underscoring fears about sustained economic turmoil.
Europe also saw its currency rise, with the euro climbing to $1.1473, its highest point since February 2022, reflecting both dollar weakness and a renewed haven-like role for the euro after Germany suspended its constitutional debt brake.
Traders Exit USD at Record Pace
Analysts and strategists are calling the market reaction a “historic sentiment reversal”. A Z-score analysis, which assesses how abnormal the shift in investor behavior is, indicated that the speed and magnitude of the bearish pivot in dollar positioning is the most extreme on record.
“Dollar confidence is under threat,” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp. “Fading U.S. exceptionalism, unsustainable debt levels, and geopolitical unpredictability are undermining its reserve currency status.”
This marks a dramatic shift from the bullish consensus that surrounded the dollar only months ago, when President Trump’s re-election was expected to usher in a wave of tax cuts and faster economic growth.
Markets Brace for Fed Action
The selloff extended across equity and bond markets. The S&P 500 Index dropped 3.5% on Thursday, and long-duration Treasuries fell as investors adjusted portfolios amid expectations the Federal Reserve will be forced to cut interest rates.
Overnight indexed swaps now price in 96 basis points of rate cuts for the year — a far cry from earlier expectations of policy tightening.
The tariff escalation has sparked fears that the economy is veering into contraction territory, leading to rising volatility across currency markets. Euro volatility has surged to its highest level since 2020, while Swiss franc volatility reached highs not seen since 2016.
Geopolitical Tensions Cloud Outlook
President Trump’s decision to hike tariffs on Chinese imports to 145% has triggered speculation about Beijing’s next move. With dozens of nations in a 90-day tariff pause window, investors remain on edge over potential spillover effects on global trade.
“Unless you think some resolution is imminent, the market is likely to stay on the current path of least resistance — a dollar exit,” said Rodrigo Catril, strategist at National Australia Bank. “The narrative of exiting US assets and selling the dollar is likely to persist as long as trade tensions remain elevated.”
As geopolitical tensions and fiscal policy uncertainty mount, the once-unshakable confidence in the US dollar is being reevaluated at both institutional and retail levels, possibly reshaping the global reserve currency landscape.
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