Dollar Drops as U.S. Tariffs on China Rattle Markets, Boost Yen and Franc

The U.S. dollar weakened against safe-haven currencies like the yen and Swiss franc on Wednesday as global markets reacted to Washington’s looming 104% tariffs on Chinese goods. The yuan slid to a record low offshore at 7.4288, surpassing its previous peak of 7.3765, with investors watching China’s central bank for signs of further easing.

Market sentiment soured after President Donald Trump stood firm on an additional 50% tariff hike set to take effect within hours, accusing Beijing of manipulating its currency to counter the impact. Analysts warned the move could trigger a sharp U.S. downturn. “You may as well kiss goodbye to any hopes of avoiding a recession,” said Chris Weston, head of research at Pepperstone.

Fears of stagflation and a deepening U.S. economic slump pushed investors into safer assets. Federal Reserve rate cut expectations surged, with futures pricing in 111 basis points of cuts this year, up from 92 basis points a day earlier. U.S. stock futures fell while long-dated Treasuries saw heavy selling, boosting demand for the yen and franc.

Nomura analysts highlighted the yen as their top forex play amid rising stagflation concerns and Trump’s aggressive trade stance. Japan’s solid macro backdrop and widening rate differentials are expected to support the yen further.

The dollar slid 0.7% to 145.23 yen, nearing its recent low of 144.55. It also hit a six-month low of 0.8430 against the Swiss franc, close to key support at 0.8374. Meanwhile, the euro gained 0.4% to $1.0996 on news that Germany’s major political parties had reached a coalition deal, easing EU political risks.

Markets remain on edge as traders brace for further currency and policy moves from both Washington and Beijing.