US dollar wobbles as growth concerns weigh; safe-havens yen, Swiss franc rise

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The safe-haven yen and Swiss franc advanced in choppy trading on Thursday, while the U.S. dollar slumped, as jittery investors turned increasingly risk-averse amid a continued selloff on Wall Street that has been hammered by an escalating trade war initiated by the United States.

Investors are now worried about the potential impact of the Trump administration’s big tariffs on the U.S. economy.

The dollar did trim losses after U.S. Commerce Secretary Howard Lutnick said on Thursday that the one-month reprieve on hefty tariffs on goods imported from Mexico and Canada that has been granted to automotive products is likely to be extended to all products that comply with the U.S.-Mexico-Canada Agreement on trade.

“The narrative has shifted on tariffs, which are now viewed as a hindrance to economic growth,” said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.

“The market is starting to see that there are a lot of U.S. companies dependent on exports and imports. If our trade numbers decrease overall, that’s probably not good for the economy, which could slow down as a result.”

The yen and Swiss franc typically benefit in times of risk aversion.

In afternoon trading, the dollar fell 0.9% against the yen to 147.65 yen, hitting a five-month low earlier of 147.31. Against the Swiss franc, the dollar dropped to a three-month low of 0.8828 franc, and last traded down 0.9% at 0.8827.

The dollar also weakened against the Canadian and New Zealand dollars, as well as the biggest emerging market currencies, such as the Mexican peso, South African rand, and the Turkish lira.

The selloff in U.S. equities and safe-haven buying of the yen and Swiss franc has mostly overshadowed the euro’s performance on Thursday.

The euro touched a four-month peak against the dollar after the European Central Bank cut interest rates for the sixth time in nine months, as expected, but revised higher its near-term inflation forecast.

The single European currency rose to its highest since November of $1.0854, before easing to $1.0791, little changed on the day. The euro has gained 4% so far this week, set for its biggest weekly jump since March 2020.

The shared currency has also benefited from Germany ramping up spending, with a massive 500 billion euro ($540.90 billion) special fund sought for infrastructure and plans to increase defense investment shackled by rigid borrowing rules. Hefty government spending, which can be supportive for growth overall, can also exacerbate price pressures.

The ECB on Thursday raised its inflation forecast to 2.3% this year for the euro zone, above the 2.1% seen three months ago. Measures of longer-term inflation in the euro zone have already surged from around 2.05% early this week to 2.24% by Thursday, an unusually large shift.

Jan Felix Gloeckner, senior investment specialist, at Insight Investment wrote in emailed comments that there was a shift in the ECB’s tone, suggesting a possible slowing down of policy easing.

“Short-term inflation forecasts pushed upwards, while the Bank (ECB) warned that policy was becoming ‘meaningfully less restrictive’,” Gloeckner said. “This was taken by markets as meaning that the easing cycle will slow, with less than two more cuts now priced in by year end.”

GERMANY’S SPENDING PLAN IMPACT

A big focus for investors is the impact of Germany’s huge spending plan on ECB monetary policy. ECB President Christine Lagarde, in a press conference after the rate decision, said the spending proposals would boost European growth.

But the ECB needed to be “attentive, vigilant” and understand how it was going to work, she added. “What the timing will be, what the financing will be so that we can then draw the conclusions…and what impact it would have eventually on inflation.”

Across the Atlantic, the dollar index, which measures the greenback against six peers, was on a four-day losing streak, falling to a four-month low. It was last down 0.3% at 104.12.

U.S. data on Thursday was mixed overall, providing more evidence of a looming slowdown. For instance global outplacement firm Challenger, Gray & Christmas said it tracked 62,242 announced job cuts by the federal government from 17 different agencies in February. Planned layoffs soared to 172,017 in February, partly reflecting federal government layoffs. These are numbers not seen since the last two recessions, Challenger said.

Another report on Thursday showed a surge in imports in January as businesses rushed to bring in merchandise ahead of import duties, driving the trade deficit to a record high and putting trade on course to subtract from gross domestic product in the first quarter.

Trump’s administration, which has slapped tariffs on Canada, Mexico and China, gave a one-month reprieve on auto import levies to its nearest neighbors, again showing how rapidly the trade landscape can shift.

The U.S. dollar dipped 0.2% against the Canadian currency to C$1.4312.

Canadian Prime Minister Justin Trudeau said on Thursday Canada would continue to be in a trade war with the United States for the foreseeable future. He said he would continue to engage with senior Trump administration officials about the tariffs on all Canadian imports.

Currency bid prices at 6 March​ 08:03 p.m. GMT              

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 104.06 104.29 -0.21% -4.08% 104.39 103.75

Euro/Dollar 1.08 1.0789 0.13% 4.35% $1.0854 $1.0766

Dollar/Yen 147.76 148.92 -0.73% -6.05% 149.31 147.32

Euro/Yen 159.59​ 160.62 -0.64% -2.22% 161.27 159.13

Dollar/Swiss 0.8827 0.8909 -0.93% -2.74% 0.8926 0.8826

Sterling/Dollar 1.2891 1.2893 0.02% 3.1% $1.2924 $1.2866​

Dollar/Canadian 1.4299 1.4345 -0.26% -0.5% 1.4374 1.4239

Aussie/Dollar 0.6336 0.6335 0.01% 2.39% $0.6364 $0.6323

Euro/Swiss 0.9533 0.9611 -0.81% 1.49% 0.9636 0.9515

Euro/Sterling 0.8375 0.8366 0.11% 1.23% 0.8411 0.8361

NZ Dollar/Dollar 0.5739 0.5726 0.24% 2.58% $0.576 0.5721

Dollar/Norway 10.8715​ 10.9013 -0.27% -4.35% 10.9227 10.8252

Euro/Norway 11.7407 11.7661 -0.22% -0.24% 11.794 11.711

Dollar/Sweden 10.165 10.188 -0.23% -7.73% 10.2154 10.088

Euro/Sweden 10.9779 10.9955 -0.16% -4.26% 11.027 10.8845

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Yadarisa Shabong in Bengalaru and Kevin Buckland in Tokyo; Editing by Jacqueline Wong, Sonali Paul, Alex Richardson, William Maclean)