Dollar rally fades as investors shrug off Trump U-turns

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Dollar rally fades as investors shrug off Trump U-turns

foreign exchange :: 6hrs ago :: source - reuters

U.S. dollar banknotes are seen in this illustration taken March 19, 2025. REUTERS/Dado Ruvic/Illustration

By Tom Westbrook and Amanda Cooper

SINGAPORE/LONDON (Reuters) -The U.S. dollar eased on Thursday, surrendering some of the previous day's big gains after U.S. President Donald Trump backed down from threats to fire the head of the Federal Reserve and appeared to soften his stance on China.

It caught an extra boost when Treasury Secretary Scott Bessent said the U.S. did not have a specific currency target in mind, ahead of talks with his Japanese counterpart. Bessent has also said the current de facto embargo on U.S.-China trade was unsustainable, while cautioning that the U.S. would not move first in lowering its levies of more than 100% on Chinese goods.

The dollar has recovered from a 3-1/2 year low of $1.1572 per euro, but was under pressure as trading in Europe gathered pace, with the single currency up 0.5% to $1.1368.

It is clear, by now, that no other currency is as sensitive to trade headlines as the dollar, said ING currency strategist Francesco Pesole in a note to clients.

"We still think the balance of risks remains skewed to the downside for USD in the near term, but we don't expect a repetition of the one-way traffic in dollar selling we have witnessed of late," he said.

"That said, EUR/USD remains almost entirely a function of USD moves. And another leg higher above $1.15 remains possible should fears about the Fed's independence take centre stage again."

Investors were rattled over the past few days when Trump made a series of verbal attacks on Fed Chair Jerome Powell over his reluctance to cut interest rates until the data justified such a move.

Such has been the investor pullback from the dollar that it is currently on course for its worst start to the year against a basket of currencies since the 1970s, according to LSEG data.

The apparent openness from the Trump administration to negotiation on tariffs, together with a little more confidence in the independence of the Fed, has given investors a foothold to buy U.S. assets.

Yet Jan Hatzuis, who is chief economist at Goldman Sachs, believes the dollar has a lot further to fall.

"A decision by non-U.S. investors to reduce their U.S. exposure would thus almost certainly result in significant dollar depreciation," Hatzuis wrote in the Financial Times on Thursday.

"In fact, even reluctance by non-U.S. investors to add to their U.S. portfolios will probably weigh on the dollar," he said.

The Swiss franc, which is around its strongest against the dollar in more than a decade thanks to hefty safe-haven flows this month, rose, leaving the U.S. currency down 0.5% on the day at 0.8268 francs.

The yen also firmed, leaving the dollar down 0.6% at 142.68, while sterling rose 0.3% to $1.3288.

China's yuan was a touch weaker at 7.2974 per dollar. [CNY/]

In crypto markets, bitcoin had followed U.S. stocks and run higher even against a rebounding dollar. By Thursday, it had run out of some steam, easing 1.2% on the day to $92,526. Meanwhile, Trump's meme coin surged 33% overnight after the online promotion of a gala dinner with the president for the top 220 buyers of the $TRUMP coin.

(Reporting by Tom Westbrook; Editing by Shri Navaratnam, Jamie Freed and Kate Mayberry)