In the currency markets, the value of the dollar against a basket of currencies sharply fell last week, with the euro to dollar exchange rate jumping more than 4 percent, marking its largest weekly gain in the last 16 years.
The dollar index, which shows the value of the U.S. dollar against six major world currencies, plummeted 3.4 percent last week to 103.90 points, the lowest level since November. Meanwhile, the euro to dollar exchange rate surged 4.4 percent to 1.0830 dollars.
The American currency also weakened against the Japanese yen by 1.7 percent, sliding to 148.04 yen.
The largest weekly drop in the dollar index since November 2022 is a result of signs of a weakening U.S. economy and investor uncertainty regarding the trade policy of U.S. President Donald Trump.
On Tuesday, Trump imposed tariffs of 25 percent on imports from Canada and Mexico, and increased tariffs on imports of Chinese products by an additional 10 percent, totaling 20 percent. Canada and China immediately retaliated with the same measure.
Just a day later, Trump decided to postpone tariffs on automobiles imported from Canada and Mexico for a month, and then postponed tariffs on all goods covered by the North American trade agreement for another month.
Such abrupt turns have unsettled investors.
On the other hand, due to high inflation, the U.S. central bank may keep interest rates at current levels longer than expected.
However, investors hope that the Fed will soon continue to lower rates as most recent data indicates a slowdown in economic growth, but Fed Chairman Jerome Powell stated on Friday that the central bank should not rush to ease monetary policy and will wait for indicators on how Trump’s policies affect the economy and inflation.
ECB Cuts Rates by Another 0.25 Percentage Points
Last week, the euro strengthened the most against the dollar – by 4.4 percent, marking its largest weekly gain since March 2009.
This occurred even though the European Central Bank last week reduced interest rates by another 0.25 percentage points to stimulate growth in the eurozone economy.
Typically, a rate cut negatively impacts a currency, but in this case, the euro strengthened due to news that parties likely to form a new government in Germany agreed to relax fiscal rules to stimulate economic growth and increase defense investments.
The massive budget funds that the German government would invest in the economy are expected to accelerate growth.
Additionally, the euro strengthened as it is believed that the ECB is nearing the end of its rate-cutting cycle, while the U.S. Fed is expected to continue lowering interest rates in the upcoming period.
Wall Street Falls Due to Trump’s Turns, European Markets Rise
On Wall Street, stock prices sharply fell last week due to uncertainty regarding Washington’s trade policy, while European markets rose after the European Central Bank further reduced interest rates.
On Wall Street, the Dow Jones fell 2.4 percent last week to 42,801 points, while the S&P 500 dropped 3.1 percent to 5,770 points, and the Nasdaq index fell 3.45 percent to 18,196 points.
The sharp decline in the index for the second consecutive week is a result of investor uncertainty regarding U.S. President Donald Trump’s trade policy.
Such abrupt turns have unsettled investors. – “Confusion is, unfortunately, increasing. A lot of conflicting information is coming in: tariffs are being imposed, tariffs are being postponed, some tariffs are being applied, and some are being exempted… The uncertainty created by sudden changes in political messaging can harm investments and the entire economy. Additionally, high tariffs could raise inflation,” explains Mark Malek, a director at SiebertNXT.
The Nasdaq index fell the most last week as stocks of several large technology companies remain under pressure. As a result, it dipped into correction territory mid-week, more than 10 percent below its record level reached in mid-December.
The technology sector has been under pressure since mid-January, when the significant success of a cheap AI model from the Chinese startup DeepSeek shook the thesis that the U.S. leads in artificial intelligence development and raised questions about the justification of massive investments by American companies in AI development.
German Stocks Surge
On most European exchanges, stock prices rose last week after the European Central Bank cut interest rates by another 0.25 percentage points to stimulate growth in the eurozone economy.
However, the London FTSE index weakened by 1.5 percent to 8,679 points, while the Frankfurt DAX rose by 2 percent to 23,008 points, and the Paris CAC increased by 0.1 percent to 8,120 points.
Stock prices in Germany surged the most as parties likely to form a government agreed to establish a 500 billion euro fund for infrastructure development. They also agreed to relax fiscal rules to stimulate economic growth and increase defense investments. As a result, stock prices of construction companies and arms manufacturers rose significantly.
