Dollar Plunges Amidst Renewed Trade Tensions And Fiscal Deficit Concerns

(RTTNews) - The Dollar recorded a massive plunge during the week ended May 23 amidst an escalation in tensions between the U.S. and its trading partners, particularly the European Union. Citing disappointment over the trade negotiations with the European Union, President Trump had on Friday imposed a 50 percent tariff on imports from the European Union. Concerns about the fiscal deficit situation in the U.S. also weighed on sentiment.

The U.S. Dollar inter alia slipped against the euro, the British pound, the Australian dollar, as well as the Japanese yen during the past week. The greenback also declined against the Swiss franc, the Swedish krona and the Canadian Dollar. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies also dropped heavily.

From the level of 101.09 on May 16, the Dollar Index plunged 1.96 percent in a week's time. The Index which had touched a weekly high of 100.90 on Monday dropped to the weekly low of 99.05 by Friday. The Index eventually edged up and closed the week at 99.11.

Amidst the dollar's weakness triggered by the tariffs imposed on the European Union, the EUR/USD pair rallied 1.80 percent during the week ended May 23. From the weekly low of 1.1170 touched on Monday, the pair jumped to 1.1376 on Friday. The pair eventually closed at 1.1365, versus 1.1164 a week earlier.

The British pound also surged emphatically against the greenback during the week ended May 23 amidst a larger-than-expected spike in annual inflation. Data released on Wednesday showed annual inflation rate in the U.K. jumping to 3.5 percent in April. The highest reading since January 2024 compared with 2.6 percent in March and forecasts of 3.3 percent. The GBP/USD pair which had closed at 1.3275 on May 16 gained 1.98 percent during the week ended May 23 to close at 1.3538. The weekly trading range was wider, between a low of 1.3265 recorded on Monday and a high of 1.3542 recorded on Friday.

In the week that saw a widely expected rate cut by the Reserve Bank of Australia, the Australian Dollar jumped 1.44 percent against the U.S. Dollar. The Reserve Bank of Australia on Tuesday cut its cash rate by 0.25 percent to 3.85 percent. From the level of 0.6403 recorded on May 16, the pair rose to close the week ended May 23 at 0.6495. During the week, the pair oscillated between a low of 0.6391 recorded Tuesday and the high of 0.6501 recorded on Friday.

The U.S. Dollar weakened heavily against the Japanese Yen during the week ended May 23. The USD/JPY pair closed the week at 142.57 versus 145.63 a week earlier, registering a decline of 2.1 percent. The pair ranged between the high of 145.51 recorded on Tuesday and the low of 142.42 recorded on Friday. The currency movements came amidst a larger-than-expected spike in core inflation and sticky levels of headline inflation. Data released on Thursday showed Japan's core consumer price index rising 3.5 percent year-on-year in April, higher than 3.2 percent recorded in March and exceeding market expectations of 3.4 percent. The highest reading in over two years renewed bets of another rate hike by Bank of Japan.

The 6-currency Dollar Index has rallied amidst a delay by U.S. in imposing higher tariffs on the European Union. It is currently at 99.35 versus 99.11 at close on Friday. Amidst the Dollar's rebound, the EUR/USD pair is hovering near 1.1365 whereas the GBP/USD pair has rallied to 1.3561. The AUD/USD pair has plunged to 0.6454 versus 0.6495 at close on Friday. The USD/JPY pair has surged to 144.07 as the Japanese yen weakened amidst reports that Japan was planning to trim issuance of long- term bonds.