Dollar Slumps While European Rates Surge

2025-03-05 07:13:00 ET

Summary

• Talk emerged yesterday that the dramatic losses in US equities amid recession fears in light of the rash of tariff announcements and threats would draw the new administration's attention.
• Nearly all the Asia Pacific equities, but Australia and New Zealand rallied, led by Hong Kong's Hang Seng and the index of mainland shares that trade there.
• Europe's Stoxx 600, which tumbled 2.1% yesterday, is up about 1. 5% and is now higher on the week.

Overview: Talk emerged yesterday that the dramatic losses in US equities amid recession fears in light of the rash of tariff announcements and threats would draw the new administration's attention. Commerce Secretary Lutnick suggested yesterday that President Trump may consider a compromise on Mexico and Canadian tariffs announced yesterday. There was no sign of that in the president's address to the joint session of Congress yesterday. US index futures are trading 0.6%-0.8% higher. The other significant development is the opening up of the European purse strings. Germany is considering a 500 bln euro spending program over the next decade, and the EU is discussing granting fiscal flexibility that could be worth as much as 650 bln euros over the next four years. That said, joint bonds do not seem as likely a course as it might have appeared a couple of weeks ago. Still, the net impact has been to spur a sharp sell-off in European bonds. The benchmark 10-year yields is up mostly 14-18 bps today. The euro pushed above $1.07 in the European morning before consolidating. Sterling briefly traded above $1.2850. The US dollar is weaker against all the G10 currencies (the dollar-bloc currencies are laggards) nearly all the emerging market currencies....

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