The slide came after the US president revived last month’s threat to unilaterally impose country-specific tariff rates within the next two weeks.
“There’s clearly solid dollar selling,” said Kit Juckes, the chief foreign exchange strategist at Société Générale.
Jonathan Reynolds, the UK trade secretary, said the US was expected to cut its tariffs on British cars “very soon” after “a very significant week” of talks.
The UK economy slumped by 0.3% in April, which could bring forward the date when the Bank of England cuts interest rates again.
“All this is agitating markets, who in order to lend to the US would require a combination of higher [interest rates] and a weaker exchange rate,” he said.
In response to Donald Trump’s recent trade threats and the weakening economy, which seemed to portend interest rate cuts by the Federal Reserve, the dollar fell to its lowest level in over three years on Thursday, while the FTSE 100 closed at a record high.
The dollar was down nearly 10% since the start of the year in terms of its value relative to a basket of currencies after foreign exchange traders sold it in favor of the yen and the euro, both of which increased by roughly 1% against the US dollar.
As investors searched for alternatives to US company shares, the FTSE 100 closed the day at 8,884 points in London, above the previous closing high of 8,871 points set on March 3 of this year.
There was little desire to purchase dollars, according to analysts, at a time when the US economy was expected to suffer due to unpredictable White House policies and recent data showing a weakening jobs market.
Following the US president’s resuscitation of his threat last month to unilaterally impose country-specific tariff rates within the next two weeks, the decline occurred. Trump stated at a Washington event on Wednesday that “we’re going to be sending letters out in about a week and a half, two weeks, to countries, telling them what the deal is.”.
Growing rumors that the Fed would start lowering borrowing costs sooner than anticipated after consumer and producer inflation reports were less than anticipated also unsettled markets.
The four-week average number of initial applications for unemployment benefits increased by 5,000 to 240,250 in May, the highest since August 2023, which was followed by weaker job hiring.
Société Générale’s chief foreign exchange strategist, Kit Juckes, stated that “there is obviously solid dollar selling.”.
“I believe we have clearly seen a rotation in global equity markets as investors have for the first time in years questioned the TINATA – there is no alternative to America,” stated Neil Wilson, UK investor strategist at Saxo Markets, in response to the FTSE rally.
“Investors are turning their attention elsewhere, and discussions with clients frequently center on geographic diversification and lowering exposure to the US. “.”.
It was also reported that Washington and India were at odds over talks on steel and aluminum imports, as well as the possibility of imposing import taxes on Indian pharmaceuticals. If the talks failed, there were rumors that Delhi might respond by imposing tariffs on US imports.
India’s negotiators had reportedly objected to a long list of US demands, including lifting price controls on medical devices and permitting the importation of genetically modified crops, according to Bloomberg.
Following Trump’s announcement that he would implement the bilateral trade agreement he signed with Keir Starmer last month, which would allow the UK to avoid additional car import taxes in exchange for loosened quotas on US beef and ethanol exports to the UK, the UK is anticipated to benefit from increased trade.
The US is anticipated to lower its tariffs on British automobiles “very soon” following “a very significant week” of negotiations, according to UK Trade Secretary Jonathan Reynolds.
But worries that the UK economy was also suffering more than anticipated and that the demand for sterling would decline as a result of the Bank of England’s earlier interest rate cut prevented the pound from rising to nearly $1.03 against the dollar.
Since the UK economy shrank by 0.3 percent in April, the Bank of England may lower interest rates sooner rather than later. Although policymakers are scheduled to meet next week, it is not anticipated that they will lower the borrowing cost from its current level of 4 percent until at least August.
Senior economist Vasileios Gkionakis of Aviva Investors stated that the dollar’s persistent decline since Trump’s inauguration is likely due to a lack of confidence in the US economy’s ability to expand at the remarkable rate it has in recent years.
He said another reason not to buy dollars was the growing US government debt, which Trump has said will increase after his tax bill is approved by both chambers of Congress.
“All of this is upsetting markets, who would need a combination of higher [interest rates] and a weaker exchange rate in order to lend to the US,” he stated.
