Most G-10 currencies appreciated against the U.S. dollar as risk aversion diminished the dollar's appeal and increased interest in volatility trades. Concerns over the Trump administration's tariff policies have weakened investor confidence in the dollar. The Bloomberg Dollar Index fell by 0.7%, reaching a six-month low, as an investigation into potential tariffs on critical minerals was launched.
Derek Halpenny from Mitsubishi UFJ Financial Group noted that restrictions on Nvidia's (NVDA, Financial) H20 chip sales also pressured the dollar. BBH strategists Win Thin and Elias Haddad expect the dollar to continue weakening due to growing uncertainty about U.S. policies and their negative impact on the economy.
Options traders remain cautious, as G-10 currency volatility remains high. The euro/dollar one-week risk reversal increased significantly, indicating deeper structural changes in risk sentiment. The euro rose 0.9% to 1.1386 against the dollar. The overnight volatility peaked at 21.85% before settling at 16.32% ahead of the European Central Bank meeting.
The pound/dollar remained stable at 1.3230, with UK inflation easing for the second consecutive month. The dollar/Canadian dollar fell 0.6% to 1.3879 after the Bank of Canada kept interest rates unchanged. The dollar/yen declined 0.8% to 142.09, its lowest since September 30, amid upcoming tariff discussions between Trump and Japanese officials. The dollar/Swiss franc dropped 1.1% to 0.8143, with volatility increasing by 137 basis points to 14.12%.
