The tariff war cloud ignites the wave of de-dollarization, and safe-haven currencies such as the euro and the pound rise with the tide.

Notice that the weakening of the US dollar on Monday boosted safe-haven currencies, including the Japanese yen and the Swiss franc, as investors sold off US assets under the Trump administration policy - JPMorgan expects this trend to continue. As trade agreement progress has stalled, the Bloomberg US Dollar Spot Index fell by 0.5%, with a cumulative drop of nearly 7% so far this year. Manufacturing activity data released on Monday was below expectations, intensifying market concerns about US economic growth and further weighing on the dollar. The yen and Swiss franc, among other safe-haven currencies, rose by about 1% the same day, while the pound surged to a three-year high. Miranda Qian Dan, co-head of global foreign exchange strategy at JPMorgan, stated in an interview, "We expect the dollar to enter a second round of weakness, which is a cyclical shift that will continue for several quarters." Trump's trade policy and tough rhetoric towards China have prompted investors to buy assets outside of the US. Another US dollar indicator has already dropped by about 9% from January 20 (the day Trump returned to the White House) to April 28, potentially marking the largest monthly decline since at least 1973. According to data from the Commodity Futures Trading Commission (CFTC) as of the week ending April 22, speculative traders such as hedge funds and asset management companies have increased their bearish bets on the dollar, with net short positions reaching a new high since September 2024. Long-term investors are also joining in the exodus from the US - their lower frequency of adjusting strategies means that the dollar may face sustained pressure in the long run. Qian Dan pointed out that the Trump administration's policies are weakening the "American exceptionalism" theme that has supported the market in recent years. "The two main pillars of US growth - immigration and fiscal policy - are tightening. Due to the inflationary effect of tariffs, real policy rates in the US are becoming more negative." Affected by trade policy trends, US bond yields fell across the board on Monday, with the 10-year yield dropping to 4.2%. Traders are now waiting for this week's US labor market report for further guidance. Benefiting Europe Qian Dan added that the euro will be one of the main beneficiaries of the weakening dollar. The euro has risen by over 10% against the dollar so far this year, comparable to the yen and franc. She stated that Morgan Stanley has raised its euro forecast based on the assessment of a weakening dollar, increasing the year-end exchange rate expectation from 1.14 to 1.20. This is the second time in three months that they have raised their euro forecast - after Germany agreed to significantly increase fiscal spending in early March, they already raised their outlook for the first time. The pound has also strengthened due to the move away from US assets. This selling pressure has even outweighed the impact of the possibility of further interest rate cuts by the Bank of England (rate cuts usually lower bond yields, weakening the pound's attractiveness). Although some data shows a strong UK economy, signs of slowing inflation have led traders to bet that the Bank of England will continue to cut interest rates this year. Goldman Sachs remains optimistic about the pound's upward trend, predicting it will rise to $1.39 within 12 months (the highest since 2021). In a report, Goldman Sachs strategist Camaksha Trewidni wrote, "We believe there is still room for the pound to rise, benefiting from the overall trend of a stronger European currency this year, and the lower vulnerability of the UK economy to US tariff shocks." The rise of the pound may also stem from market expectations of an improvement in UK-EU economic relations. On May 19, London will host a defense summit, with the German Ambassador to the UK stating that this could lead to a comprehensive reassessment of post-Brexit relations. Elias Hadad, a strategist at Brown Brothers Harriman, said, "A closer UK-EU trading relationship will improve the prospects for UK business investment, which is positive for the pound."