Trump's "tariff bomb" on Europe impacts market confidence, causing the US dollar to plunge to a three-week low.

On Friday, US President Donald Trump escalated the trade war once again, proposing to impose a 50% tariff on the European Union starting from June 1st. This move reignited concerns in the market about the impact of tariffs on the global economy and trade, causing investors to sell off the US dollar, leading to a broad decline in the US dollar index. Trump stated on social media that the EU is "very difficult to deal with" and that negotiations with the EU have made "no progress." In another post, he threatened to impose a 25% tariff on iPhones made outside the US, including those manufactured by Apple Inc. (AAPL.US) and Samsung. On Friday, the US dollar index, which measures the US dollar against a basket of currencies, fell by 0.8% to 99.10, hitting a three-week low and posting a weekly decline of 1.9%, the largest weekly drop since mid-April. In afternoon trading on Friday, the US dollar against the safe-haven Japanese yen plummeted by 1% to 142.42, reaching a two-week low. The US dollar against the Japanese yen has already fallen by 2.2% this week, on track for the largest weekly decline since April 7th. The euro rose by 0.8% against the US dollar to 1.1363, touching a two-week high during the trading session and recording the largest weekly increase in six weeks. The British pound also rose by 0.9% against the US dollar to 1.3533, reaching a three-year high during the trading session, and posting a weekly increase of 1%, the largest in five weeks. Elias Haddad, Senior Market Strategist at Brown Brothers Harriman in London, stated, "The core factor currently weighing on the US dollar is the market's lack of confidence in US policy. The ongoing trade war is prompting countries to reassess their dependence on the United States." US Treasury Secretary Scott Bessent pointed out that Trump's tariff remarks are in response to the progress of tariff negotiations with the EU, as the president believes that the quality of the EU's trade proposals with the US is "not high enough." US stocks also fell along with the US dollar. Jayati Bharadwaj, Global Foreign Exchange Strategist at TD Securities, stated that the synchronised decline of the US dollar and the stock market highlights the US dollar's failure to act as a safe-haven currency this year. "The correlation between the US dollar and the stock market has been broken... and we expect this to continue. The risks we have faced since the beginning of the year have mainly come from the United States." Furthermore, following Moody's Corporation's downgrade of US debt last week, investors are currently focusing on the US's $36 trillion debt burden and Trump's tax legislation, which could add trillions more to the debt. The legislation has barely passed the Republican-controlled House of Representatives and will soon undergo weeks of debate in the Senate, leaving investor sentiment fragile in the near term.