LONDON (Reuters) – Donald Trump’s second presidency is having a dramatic impact on currencies around the world, though not in the way investors anticipated just a few months ago.
The dollar (DX=F) has weakened this year against all other developed market currencies, except Canada’s, on concern that tariff uncertainty is harming the U.S. economy.
“Tariffs, generally speaking, tend to be good for the dollar,” said Barclays FX strategist Lefteris Farmakis. “But when they are applied against very close trading partners, they can harm confidence in the U.S.”
U.S. recession risks are growing and investors also see reasons to buy the likes of the euro, Swedish crown and Japanese yen in their own right.
Here’s a look at some of stand-out movers.
Germany’s historic proposal to ramp up defence and infrastructure spending have catapulted the euro higher. It posted its biggest weekly gain versus the dollar since 2009 last week and is set for its best quarter since 2022, with a 5% rise.
At around $1.09, the euro is at its highest since the November 5 U.S. election. BofA sees further gains to $1.15 by end-2025.
The euro has also risen against sterling and the Swiss franc.
The European Central Bank approaching the end of its easing cycle and Europe’s increased defence spending has changed the outlook for the euro in a fundamental way, said Kenneth Broux, head of corporate research FX and rates at Societe Generale, noting U.S. tariffs remained a risk to euro gains.
Another big gainer has been the yen, some 6% stronger against the dollar so far this year thanks to higher Japanese rates and safe-haven flows during turbulent times.
“If you want to hedge against the risk of slowdown in the U.S. you go to Japan because of the risks for lower U.S. Treasury yields,” said Barclay’s Farmakis.
The yen is particularly sensitive to changes in the gap between U.S. and Japanese borrowing costs. Yen-positive developments at home meanwhile include companies meeting union demands for substantial wage increases.
That could push the Bank of Japan to accelerate rate hikes, lifting the yen’s appeal after four straight years of declines. Speculators have mounted their biggest ever wager that the Japanese yen will continue to rise.
Pressure on currencies in Canada and Mexico, the two largest U.S. trading partners, has abated but is unlikely to disappear soon.
ING says current trading levels suggest a 2% risk premium is priced into the Canadian dollar, half the peak risk premium seen in early Feb when it hit 22-year lows versus the greenback.
