Dollar Slides Amid Trade Policy Uncertainty and Market Volatility

The U.S. dollar experienced its largest weekly loss in over a year, falling 1.8% after President Donald Trump hinted at a softer stance on tariffs against China. In an interview with Fox News, Trump expressed optimism about reaching a trade deal, stating, “We have one very big power over China, and that’s tariffs.”

The dollar index dropped 0.8% on Friday before narrowing losses to 0.65%, signaling heightened uncertainty. Analysts warned that shifts in U.S. tariff or interest rate policies could trigger a dollar rebound. Capital Economics’ Simon MacAdam noted the dollar’s strength stems from robust U.S. economic data and favorable interest rate differentials.

Global markets responded cautiously. Wall Street saw modest declines, with the S&P 500, Dow Jones, and Nasdaq losing 0.3%, 0.3%, and 0.5%, respectively. China's blue-chip index gained 0.8%, and the yuan strengthened by 0.7% in offshore trading.

Oil prices stabilized after Trump urged Saudi Arabia and OPEC to lower costs, benefiting U.S. crude futures, which rose to $74.66 a barrel. Brent crude increased by 0.3% to $78.50. Amundi’s Amelie Derambure highlighted that Trump’s oil policy could positively impact global economies, including Europe.

European stocks showed optimism early in the day, supported by luxury retail gains, but flattened by midday. BlackRock CEO Larry Fink suggested renewed investment opportunities in Europe, citing fading pessimism.

The yen strengthened 0.2% after the Bank of Japan raised interest rates to their highest since 2008, signaling potential future hikes. Meanwhile, the 10-year U.S. Treasury yield dipped to 4.6194%, below recent highs.

As the Federal Reserve and European Central Bank prepare for policy meetings next week, markets remain watchful of economic moves under the Trump administration.