The dollar weakened broadly on Thursday, while the euro rallied after President Donald Trump announced harsher-than-expected tariffs on US trading partners, unsettling markets as investors flocked to safe havens such as the yen and Swiss franc.
The highly anticipated tariff announcement sent shockwaves through markets, with global stocks sinking and investors scrambling to the safety of bonds as well as gold.
Trump said he would impose a 10% baseline tariff on all imports to the United States and higher duties on some of the country's biggest trading partners.
The new levies ratchet up a trade war that Trump kicked off on his return to the White House, rattling markets as fears grow that a full-blown trade war could trigger a sharp global economic slowdown and fuel inflation, Reuters reported.
The dollar index, which measures the US currency against six others, fell 1.6% to 102.03, its lowest since early October.
The euro, the largest component in the index, gained 1.5% to a six-month high of $1.1021.
Trump has already imposed tariffs on aluminium, steel and autos, and has increased duties on all goods from China.
"Eye-watering tariffs on a country-by-country basis scream 'negotiation tactic', which will keep markets on edge for the foreseeable future," said Adam Hetts, global head of multi-asset and portfolio manager at Janus Henderson Investors.
The risk-sensitive Australian dollar added 0.56% to $0.63365, while the New Zealand dollar climbed 0.9% to $0.5796.
The yen strengthened to a three-week high against the dollar and was last up 1.7% at 146.76 per dollar, while the Swiss franc touched its strongest level in five months at 0.86555 per dollar.
"Negotiations are now going to be front of mind. This is probably the other big part of why we're seeing some of these currencies outperform," said Nicholas Rees, Head Of Macro Research at Monex Europe.
"It's very difficult actually to see how other countries make concessions that would encourage the US to lift these tariffs. And I think that's a big underpriced risk."
Investors are worried that some US trading partners could retaliate with measures of their own, leading to higher prices.
EU chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures if talks with Washington failed.
Worries about a global trade war have intensified since Trump stepped into the White House in January, combining with a slew of weaker-than-expected US data to stoke recession fears and undermine the dollar.
The dollar index is down more than 5.7% this year.
"These tariffs have certainly significantly increased the risks to the downside for global growth, so on balance we think that will eventually start to become more supportive again for the dollar," said Lee Hardman, senior currency analyst at MUFG.
In Asia currencies, China's onshore yuan slid to its weakest level against the dollar since February 13. China's offshore yuan also hit a two-month low.
The Vietnamese dong slumped to a record low.
Elsewhere, the Mexican peso and Canadian dollar strengthened.
Canada and Mexico, the two largest US trading partners, already face 25% tariffs on many goods and will not face additional levies from Wednesday's announcement.
