The dollar is posting major losses against all G10 currencies today (USDIDX: -0.6%), rapidly erasing half of last month’s gains.
Source: xStation5
The return of the so-called "Sell America" trade is driven by a sudden escalation in tensions between the US and Europe:
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Donald Trump has announced additional 10% tariffs on countries that have deployed military forces to Greenland. Tariffs on all products shipped to the US would take effect on June 1st and remain in place until the US finalizes a deal for the “full purchase of Greenland.”
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The US President’s ultimatum has faced strong criticism from several European leaders, including French President Emmanuel Macron, who is advocating for the use of the EU’s "trade bazooka"—the Anti-Coercion Instrument—against the US, which would allow the EU to impose retaliatory tariffs more freely.
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The European Parliament also responded to Trump's rhetoric by halting the ratification of the trade agreement signed between the EU and the US last summer.
The escalating conflict led to a losing session on both sides of the Atlantic, but the dollar remains the primary loser, further weighed down by the chaos surrounding the Fed. The DOJ investigation has fractured the Republican party, with members threatening to block the nomination of a new Fed Chair until the probe is dropped.
While opposition from Trump’s own party should theoretically act as damage control, the lack of clarity regarding future Fed leadership and the risk of a trade war are dragging down sentiment. US Treasuries also suffered a sell-off, pushing 10-year yields up by approximately 5 bps.
The Trump-Powell conflict will remain the main drag on the dollar in the near term, although continued improvement in US economic data (a rebound in regional ISMs, a drop in jobless claims) could support expectations for a hawkish Fed, and thus the USD. For now, however, the forex market is replaying the post-"Liberation Day" scenario: a capital outflow from the dollar toward the euro and the franc.
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