NEW YORK: The US dollar was higher on Thursday as markets took US President Donald Trump’s latest tariff salvos in their stride, except in Brazil where a threatened 50% levy sent the real sliding.
The dollar had been knocked back by a sharp decline in US Treasury yields after a 10-year note auction on Wednesday garnered strong demand, tempering worries about the “Sell America” narrative that saw Treasuries, the dollar and Wall Street stocks all sold off earlier this year.
Francesco Pesole, FX strategist at ING, said that markets were still digesting the latest tariff surprises, but that there was hesitancy around trying to second-guess Trump’s next move.
“I think the general consensus remains that he will not hit China with new tariffs and that he will be able to agree to some deal with the EU,” Pesole said.
Overall, investors were hungry for riskier assets, with the most damaging tariff scenarios looking increasingly unlikely. That helped Nvidia to become the first stock ever with a $4 trillion valuation, and lifted cryptocurrency bitcoin to an all-time peak just shy of $112,000.
Optimism was also buoyed by minutes of the Federal Reserve’s last meeting, with most policymakers of the opinion that interest rate cuts would be appropriate later this year.
The dollar index, which measures the currency against six major peers, was up 0.52% at 97.887, following a 0.2% decline on Wednesday, the same day that it pushed to the highest since June 25 at 97.837 before losing momentum.
The euro fell 0.47% to $1.167 on Thursday, while sterling fell 0.4% to $1.354.
Against typical safe-haven currencies, the dollar was up 0.3% at 146.735 yen and strengthened 0.54% to 0.798 Swiss francs.
With the exception of Brazil, Trump’s latest batch of letters to trade partners contained tariff rates close to those already proposed in his original “Liberation Day” announcement on April 2, as was the case with other letters this week.
Trump has also left the door open to extensions beyond the new August 1 deadline if countries make compelling proposals.
Brazil had originally been slated for just the baseline 10% levy, but Trump cited not just trade practices but the treatment of its former president, Jair Bolsonaro.
Bolsonaro, who was friendly with Trump when they were both in office, is on trial on charges of plotting a coup to stop current President Luiz Inacio Lula da Silva from taking office in January 2023.
The real dropped as much as 2.8% overnight to hit 5.6047 per dollar for the first time since June 6.
“Brazil is actually one of the very few countries with a trade deficit with the US,” Michael Pfister, FX analyst at Commerzbank, said.
“It’s worrying not only for the Brazilian real but also for the US dollar, you can’t be sure which country might be next,” he said.
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