The dollar hit its lowest point in over three years on Thursday, while the FTSE 100 closed at record highs amid Donald Trump’s renewed trade threats and signs of a weakening economy that hint at interest rate cuts from the Federal Reserve.
Forex traders opted to sell the dollar for the yen and euro, both of which have seen about a 1% increase against the US currency. Since the start of the year, the dollar has dropped nearly 10% in value.
In London, the FTSE 100 ended the day at 8,884 points, surpassing the previous record of 8,871 points from March 3. Investors seem to be seeking alternatives to US stocks.
Analysts have noted that recent data indicates a weaker job market. Unsettled policies from the White House have created doubts about the US economic outlook, leading to reduced appetite for the dollar.
This decline follows Trump’s suggestion of imposing country-specific tariff rates within two weeks, as he mentioned during an event in Washington. “We’ll be sending letters to countries soon to explain the situation,” he stated.
The market is also jittery over speculation that the Federal Reserve might initiate rate cuts sooner than anticipated due to declines in both consumer and producer inflation.
Job market issues are another cause for concern, with the average number of unemployment assistance applications rising to 240,250 in May—the highest level since August 2023, an increase of 5,000.
Kitjackes, chief forex strategist at Société Generale, remarked, “There’s clearly a solid dollar on sale right now.”
At the FTSE Rally, Saxo Markets UK investor strategist Neil Wilson observed that “investors are looking for alternative options,” noting that many clients are focused on diversifying geographically and minimizing exposure to the US.
Meanwhile, tensions between India and the US have escalated, particularly concerning steel and aluminum import discussions. There are concerns that if these negotiations stall, India may retaliate with its own import duties on US goods.
Reportedly, Indian negotiators have pushed back against a variety of US demands, such as the import of genetically modified crops and relaxing price controls for medical devices.
On a more positive note, the UK is expected to benefit from trade boosts as Trump indicated implementation of a recently signed bilateral trade agreement, which would allow the UK to avoid additional import duties on cars in return for more lenient quotas on Esanol exports.
UK Secretary of Operations Jonathan Reynolds mentioned that the US is likely to “quickly” reduce tariffs on UK cars following a significant week of discussions.
However, the pound’s rise to nearly $1.36 faces challenges, primarily due to lingering concerns that prior Bank of England rate cuts may weaken demand for Sterling.
In April, the UK economy contracted by 0.3%, raising the possibility of further interest rate cuts from the Bank of England. Policymakers are meeting next week, but changes to the current borrowing cost of 4.25% are not expected until at least August.
Vasileios Gkionakis, a senior economist at Aviva Investors, suggested that the dollar’s consistent decline since Trump’s presidency might stem from skepticism about exceptional economic growth. He also mentioned the rising US government debt, intensified by Trump’s tax policy, as another reason for reluctance to buy dollars.
“It’s an exciting market, but we’ll need a mix of higher interest rates and stronger exchange rates for the US,” he concluded.
