US dollar weakens amid rising ‘Trumpcession’ fears
The US dollar is weakening today, amid growing concerns that Donald Trump’s policies could push America’s economy into a contraction, and possibly a full-blown recession.
The dollar index, which tracks the greenback against a basket of rival currencies, has dropped by 0.44% today, as traders anticipate that a trade war will drive up US inflation and hurt its economy.
Sterling has risen 0.2% to $1.2724 against the dollar, its highest level since 17 December. The euro is up 0.3% at $1.052.
The dollar’s weakness comes as markets now expect the US Federal Reserve to cut interast rates three times this year. In January and February, only one or two cuts were priced in.
Investors are jumpy after a closely watched gauge of the US economy weakened yesterday.
The Atlanta Federal Reserve’s GDPNow model now estimates US GDP will shrink at an annualised rate of 2.8% in January-March, the equivalent of a 0.7% quarterly decline in activity. That helped to prompt yesterday’s losses on Wall Street.
That helped to prompt yesterday’s losses on the US stock market, even though the Atlanta Fed GDPNow can be volatile.
Kyle Rodda, senior financial market analyst at Capital.com, explains:
Wall Street tumbled off the back of the news, while the US Dollar declined as market participants began to contemplate the risks of a US recession. While much of the change is due to mechanical factors in the way GDP is calculated, a deepening trade deficit along with signs of weaker consumer spending and business activity has driven the Atlanta Fed’s GDP Nowcast to -2.8%.
Subsequently, the markets have shifted forward expectations of the next Fed rate cut to June, with May increasingly looking like a “live” meeting.
Talk of a “Trumpcession” has been growing in recent days, after the latest trade data last week showed a surge of imports as businesses tried to avoid new tariffs.
Manufacturing data yesterday showed a slowdown in US factory growth in February, with employment levels and new orders both contracting.
An index of US consumer confidence hit an eight-month low last month, while US retail sales dropped by the most in nearly two years in January.
A CBS News poll released on Sunday showed that 49% of Americans disapprove of president Trump’s handling of the economy.
Stephen Innes, managing partner at SPI Asset Management, says talk of a ‘self-inflicted “Trumpcession.”’ is on the rise:
Already queasy from a fading AI-driven rally, Wall Street is now staring down a worsening cocktail of Trump’s tariff fury, stretched equity valuations, and the cold, hard realization that the U.S. economy may be losing steam. Meanwhile, across the pond, Europe—long the ugly duckling of global markets—is suddenly the belle of the ball.
While America grapples with an economic hangover, European stocks are ripping higher, fueled by a mix of bargain-hunting, fiscal policy shifts, and the tantalizing prospect of a peace deal in Ukraine. The euro and bond yields are climbing, while the dollar and Treasuries slump—proof that global capital is rebalancing. Defence and infrastructure spending is setting the tone for a European revival, while Washington is left debating whether it’s about to stumble into a self-inflicted “Trumpcession.”
A recession, though, would mean two quarterly contactions in GDP in a row – which Paul Ashworth, chief North America economist at Capital Economics, doesn’t see happening.
He wrote last week:
Following the 0.5% m/m slump in real consumption in January and the massive 10% m/m surge in real goods imports, we now expect first-quarter GDP to contract by 1.0% annualised. Assuming that surge in imports reflects the front-running of tariffs, however, it should be more than reversed in the second quarter, when we expect GDP to rebound by 4.5% annualised.
The upshot is that a “Trumpcession” should be avoided and there is no need for the Fed to cut interest rates.
Key events
Closing post
With European stock markets closed after suffering heavy losses today, the dollar still weaker against rival currencies, and Wall Street in the red, it’s time to wrap up.
Americans have been warned to brace for higher prices within days after Donald Trump pulled the trigger on Monday and imposed US tariffs on goods from Canada and Mexico, and hiked tariffs on China.
Global stock markets came under pressure again on Tuesday, with leading indices falling sharply – and the benchmark S&P 500 losing all its post-election gains – as Canada, Mexico and China vowed to retaliate, and investors balked at the prospect of an acrimonious trade war.
US retail giants predicted that prices were “highly likely” to start rising on shelves almost immediately after a 25% duty came into effect on exports from Mexico to the US.
Most Canadian exports to the US also now face a 25% duty, with a 10% rate for energy products. The Trump administration imposed a 10% levy on all Chinese exports to the US last month, which has now been doubled to 20%.
Here’s the full story:
And here’s our US Politics Live blog, which is tracking all the latest developments:
Deutsche Bank warns of potential loss of the dollar’s safe-haven status
There’s a risk that Donald Trump’s decision to impose new tariffs on Canada, Mexico and China will undermine the dollar’s safe-haven status, argues George Saravelos, global head of FX research at Deutsche Bank.
Saravelos told clients today that four developments this year suggest this may be happening:
First, the declining correlation between the US dollar and risk assets which has been at the core of portfolio construction for many real money investors over the last decade.
Second, the unusual and simultaneous outperformance of both high and low beta currencies, with the common denominator being cheap valuations versus the US dollar.
Third, the stark relative underperformance of US risky asset valuations versus the rest of the world going back three decades despite highly elevated global uncertainty.
Fourth, the US current account deficit breaching the 4% threshold in recent months which has historically marked the limits of dollar overvaluation.
There are heavier losses across European stock markets tonight.
Germany’s DAX has racked up a 3.5% fall, on fears that tariffs will hurt its industrial base.
France’s CAC lost 1.85%, while Italy’s FTSE MIB slumped by 3.4% today.
Simon Sutcliffe, Customs & Excise duty partner at audit, tax and business advisory firm Blick Rothenberg, says the ominous signs of an emerging full-blown trade war are on the horizon, adding:
“The EU and UK are waiting in trepidation, for their turn to come.
The mixing of politics, US domestic economics and the ongoing Ukraine conflict has coloured the US President’s decision-making process. Europe’s recent actions in support of Ukraine will likely have been viewed as a catalyst for wholesale tariffs to be considered anew on the EU and possibly the UK, even after the next round of worldwide tariff measures hit in the next few weeks.”
FTSE 100 posts biggest drop since last October
The launch of a trade war between the US and Canada, Mexico and China has triggered the biggest drop on the London stock market this year.
The FTSE 100 index of blue-chip companies has closed for the night, down 112 points or 1.27%, at 8,759 points – a day after hitting its record high.
That’s the biggest daily drop on the ‘Footsie’ since 8 October last year.
Oil companies such as BP (-5.7%) banks including Barclays (-6%) and investment groups including Scottish Mortgage Investment Trust (-6.2%) and Polar Capital Technology Trust (-5.9%) were among the fallers.
Trudeau: absolutely no justification for tariffs
Canada’s prime minister, Justin Trudeau, has just blasted Donald Trump over the tariffs which were imposed on Canadian imports to the US today.
Trudeau says that today, the US launched a trade war against Canada – their “closest partner and ally, their closest friend”.
“At the same time, they’re talking about working positively with Russia, appeasing Vladimir Putin – a lying, murderous, dictator. Make that make sense.”
Trudeau says there’s “absolutely no justification or need” for the tariffs, and warns that the trade war will “first and foremost harm American families”.
This will sabotage the Trump agenda of creating a “New Golden Age” for the United States, Trudeau says.
Addressing Americans, Trudeay says it is “totally false” to claim that Canada is not willing to help in the fight against illegal fentanyl.
The border is already safe and secure, he says, pointing out that less than 1% of fentanyl imports or illegal crossings to the US come from Canada. Even so, he says Canada introduced a new programme to police the border, to respond to Trump’s concerns.
Trudeau also confirms that Canada imposed 25% tariffs on C$30bn worth of US imports immediately, and will extend this to a further C$125bn in 21 days’ time.
BREAKING: Canadian PM, Justin Trudeau announces his response to US tariffs coming into effect today, by implementing “25% tariffs against $155 billion worth of American goods”
Latest ➡️ https://t.co/PAiZ4D1jU3
📺 Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/lImpQ8i6n3
— Sky News (@SkyNews) March 4, 2025
Update: Trudeau also argues that Trump’s tariffs are “a very dumb thing to do”.
He says:
“Now, it’s not in my habit to agree with the Wall Street Journal, but Donald, they point out that even though you’re a very smart guy, this is a very dumb thing to do. We two friends fighting is exactly what our opponents around the world want to see.”
This is proving to be a volatile week for German investors.
Yesterday, the DAX index – which contains the largest German companies – hit a record high.
Today, it’s now slumped by 3.3%, a heavy fall, on fears that its industrial companies will suffer from a global trade war.
Auto parts maker Continental are still the top DAX faller, now down over 12%. It has said today it will try to pass on the cost of tariffs imposed by US President Donald Trump to its customers….
Konstantin Oldenburger, market analyst at CMC Markets, says:
The headlines surrounding an impending global trade war have become too loud to ignore on the once-booming trading floor of Frankfurt. Since nearly two-thirds of DAX companies generate their revenues outside the US, and with cyclic sectors like automotive and manufacturing being heavily represented, the index remains highly dependent on global trade. Consequently, any significant disruption from a worldwide trade war poses a substantial threat.
Continental’s warning of a lackluster year in 2025, marked by weak domestic car demand and trade tensions, brought these concerns directly home.
Whether factors such as artificial intelligence, pricing power, a more business-friendly government, and companies like Rheinmetall can shield the index from a larger correction remains to be seen. However, the sounds of trade disruptions are growing louder and are becoming increasingly difficult to ignore, even though Trump has yet to impose any direct tariffs against Germany or the European Union.
BlackRock buys Panama Canal ports amid Trump pressure
As well as launching trade wars and cutting support for Ukraine, Donald Trump has also been dropping heavy hints since entering the White House that he wants control of the Panama Canal.
Last month, he accused China of controlling the 82km (51-mile) canal, apparently a reference to the fact that there is a port at either end of the canal that is operated by a Hong Kong-based company.
Well, that’s just changed!
In a surprise move, CK Hutchison Holdings Ltd, the Hong Kong-based conglomerate, has agreed to sell those ports to US investment giant BlackRock.
BlackRock is acquiring Hutchison’s 90% stake in Panama Ports Company, which owns and operates the ports of Balboa and Cristobal in Panama. It is also buying 80% of the Hutchison Ports group, which operates 43 ports in 23 countries, in a deal worth over $19bn.
BlackRock’s CEO, Larry Fink, says:
These world-class ports facilitate global growth. Through our deep connectivity to organizations like Hutchison and MSC/TIL and governments around the world, we are increasingly the first call for partners seeking patient, long-term capital. We are thrilled our clients can participate in this investment.”
According to CK Hutchison’s co-managing director, Frank Sixt, the deal was competed after a “rapid, discrete but competitive process”.
Sixt insists that political pressure did not play a part (!), saying:
I would like to stress that the Transaction is purely commercial in nature and wholly unrelated to recent political news reports concerning the Panama Ports.
It must be noted that, however, the Transaction does remain subject to confirmatory due diligence, settlement of definitive documentations, and normal and usual completion procedures, adjustments and conditions as well as compliance by HPH with the rights of minority shareholders under existing shareholders agreements relating to the Sold HPH Interests.
Donald Trump’s trade wars could be bad for consumers (higher prices) and businesses (lower sales), but they could also keep lawyers busy.
Ben Knowles, partner at global law firm Clyde & Co , predicts a flurry of litigation between companies over existing contracts:
“From a legal and contractual perspective, tariffs of this scale will fundamentally alter the economic viability of existing agreements. As we’ve seen with past trade disputes, businesses affected by sudden tariff hikes may turn to litigation, seeking to renegotiate or exit contracts that are no longer commercially sustainable.
The coming months could see a wave of disputes raised as companies grapple with the impact of shifting trade policies.”
Reeves: UK will be hurt by trade war
Richard Partington
Rachel Reeves has warned Britain’s economy will be hurt by Donald Trump starting a G7 trade war even if Donald Trump exempts the UK from tariffs.
The chancellor said a global slowdown in trade would hit UK growth and said she was pushing hard to make the case for free trade.
“It’s absolutely the case that even if tariffs aren’t applied to the UK, we will be affected by slowing global trade, by a slower GDP growth and by higher inflation than otherwise would be the case,” she told a conference in London hosted by the manufacturing trade group Make UK.
Reeves explained:
“I’ve always been really clear that I believe strongly that free trade is good for exporters and importers for both countries on the sides of a trade deal. So I don’t want to see tariffs increased. I don’t think it serves anyone well.”
She was speaking as Trump’s decision to go ahead with sweeping tariffs on imports from Canada, Mexico and China rattled financial markets, amid growing fears over an escalating global trade war.
Reeves said she hoped the UK would be able to secure a trade deal with the White House to avoid the heaviest impact on British firms.
“I think there’s every reason to be hopeful about coming to some sort of a trade deal,” she said, adding:
“I’m not naive. This is not going to be an easy thing to secure for reasons that we all understand. There will have to be give and take on both sides. We absolutely recognise that, but I do think there’s a big opportunity here.”
S&P 500’s post-election gains are wiped out
The selloff on Wall Street is gathering pace – after half an hour’s trading, the S&P 500 is down 1.5%, losing 89 points to trade at 5,760.
That takes the S&P 500 share index back down to its levels just before last November’s election, meaning the Trump Bounce has been erased.
*S&P 500 ERASES ELECTION GAIN, WIPING OUT $3.4 TRILLION IN VALUE
— Joe Weisenthal (@TheStalwart) March 4, 2025
