The dollar index (DXY00) Friday fell by -0.80% and posted a 3-year low. The dollar retreated Friday because of concerns that the escalation of the US-China trade war would derail the economy and lead to stagflation. On Friday, China raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. The dollar is also facing a confidence crisis as the US renegotiates its relationships with its trading partners, diminishing its reserve-currency status and prompting some foreign investors to liquidate their dollar assets. The dollar sank to its lows Friday after the University of Michigan US Apr consumer sentiment index fell more than expected to a 2-3/4 year low. In addition, the dollar was pressured by Friday’s Fed-friendly PPI report that showed March producer prices unexpectedly eased, a dovish factor for Fed policy.
Hawkish Fed comments Friday lifted the dollar off of its lows. Minneapolis Fed President Kashkari said the potential inflationary impact of tariffs makes the Fed less likely to lower interest rates, even in the face of a weakening economy. Also, New York Fed President Williams said, “The current modestly restrictive stance of monetary policy is entirely appropriate given the solid labor market and inflation still above our 2% goal.” He added that he expects slower economic growth, higher unemployment, and a pickup in inflation due to the US tariff policy and reduced immigration.
