The U.S. dollar firmed broadly on Friday as global markets reeled from rising trade tensions between Washington and Brussels. The euro retreated further from its five-month high amid fears of a sharp economic downturn, while investors sought refuge in safe-haven assets.
Adding to the market’s volatility, President Joe Biden threatened a 200% tariff on European wine, cognac, and other alcohol imports, a move that escalated the brewing trade war. The European Union had already planned retaliatory tariffs on American whiskey and other goods set to take effect next month in response to Biden’s 25% tariffs on steel and aluminum imports, which were enforced earlier this week.
The intensifying economic standoff between two of the world’s largest economies fueled concerns about slower global growth, prompting a sell-off in risk assets. The S&P 500 entered correction territory on Thursday as investors piled into U.S. Treasuries and gold, seeking shelter from the market turbulence.
The euro slid to $1.0847, extending its losses from Tuesday’s peak as the trade conflict weighed on investor sentiment. Markets were already jittery over the European Union’s economic outlook, with Germany’s failure to pass a major spending proposal further exacerbating the euro’s decline.
The U.S. dollar index (DXY), which tracks the greenback against a basket of major currencies, rose 0.1% to 103.95, marking its third consecutive day of gains. The stronger dollar was driven by investors seeking stability amid economic uncertainty.
“The million-dollar question right now is: Where do we find the catalyst to turn around risk sentiment? And at this point, it’s not clear,” said Tony Sycamore, a market analyst at IG.
The dollar’s rally comes despite a more than 5% decline since January, when it hit a six-month high. The reversal signals renewed demand for the greenback as global risks mount.
Adding to market unease, concerns over a potential U.S. government shutdown continued to swirl. However, Senate Majority Leader Chuck Schumer signaled progress on Thursday, saying he would vote to advance a Republican-backed stopgap funding bill. This move suggested that Democrats might provide the necessary votes to avert a shutdown.
Investors have been closely monitoring developments in Washington, as a government shutdown could disrupt economic activity and weigh on financial markets. Despite the uncertainty, the dollar remained resilient, benefiting from its status as a safe-haven currency.
The British pound hovered around $1.2945, awaiting the release of January’s GDP figures. It had retreated from Wednesday’s high of $1.2990, its strongest level against the dollar since early November.
Meanwhile, the Japanese yen pared some of its gains, with the dollar trading at 148.32 yen, up 0.35%. Earlier this week, the yen strengthened to 146.545 per dollar, supported by safe-haven demand and expectations of further interest rate hikes by the Bank of Japan (BOJ).
Investors were eyeing the first-round results of Japan’s spring wage negotiations, which could influence the BOJ’s next move. While policymakers are expected to hold rates steady at next week’s meeting, markets are watching for signs that Japan’s central bank will continue to normalize monetary policy in the months ahead.
The Canadian dollar remained under pressure, trading at 1.4440 per U.S. dollar, as Canada found itself caught in the tariff crossfire between the U.S. and the EU.
Elsewhere, commodity-linked currencies struggled. The Australian dollar steadied at $0.6284, while the New Zealand dollar edged up 0.1% to $0.5702 after slipping on Thursday.
The risk-off sentiment weighed on global commodities, with gold rising above $2,180 per ounce as investors sought safety amid market turmoil. Oil prices remained volatile, with Brent crude trading near $82 per barrel as concerns over demand growth persisted.
In the cryptocurrency market, Bitcoin gained 1.32% to trade at $81,410.36, continuing its impressive rally. The digital asset has benefitted from institutional adoption, regulatory clarity, and ongoing inflation concerns.
Despite regulatory pressures in the U.S. and Europe, Bitcoin and other cryptocurrencies have seen renewed interest as alternative assets amid traditional market instability. Investors view Bitcoin as a hedge against economic uncertainty, with some predicting further upside if global financial conditions deteriorate.
With trade tensions escalating, economic growth slowing, and central banks reassessing policy paths, markets face a period of heightened volatility. Investors will be closely watching:
- Developments in U.S.-EU trade negotiations – Any sign of de-escalation could ease market stress.
- U.S. government funding talks – A shutdown could trigger further economic uncertainty.
- Key economic data releases – Inflation reports, retail sales, and industrial production figures will shape expectations for global growth.
- Central bank decisions – The BOJ, the Federal Reserve, and the European Central Bank will be in focus as policymakers navigate an increasingly complex economic landscape.
As markets search for direction, safe-haven assets like the U.S. dollar, Treasuries, and gold are likely to remain in high demand. Whether risk sentiment rebounds depends largely on policy responses and geopolitical developments in the coming weeks.
