Why is the US dollar surging?

Amid the market's wild moves, the big question: why is the dollar surging? The dollar gained driven by bets for a risk-off session this week as investors remain apprehensive about the escalating trade tensions. US President Donald Trump's universal tariffs on all steel and aluminium imports have rattled global currency markets. 

Trump's remarks came after German chancellor Olaf Scholz's assertion that the European Union was prepared to retaliate ‘within an hour’ should the US Impose tariffs on European imports. Canada and Mexico have also ‘condemned’ the move. Meanwhile, there is no indication of progress between Beijing and Washington. 

Markets are jittery as tariffs are likely to drive up inflation and further restrict the Federal Reserve's ability to ease monetary policy. As a result, the dollar is surging on increased safe-haven bets. According to experts, the nations whose currencies Trump is targeting will likely see a decline in value versus the dollar.  

Investors reacted by pushing the dollar higher against most major currencies. The euro fell to a two-year low, with increased bets of the single currency reaching parity with the dollar soon. Tariff risks are expected to weigh on the Indian rupee further after the Reserve Bank of India cut rates for the first time since May 2020. The RBI's intention to limit its intervention and build on the country's foreign exchange reserves also weighed on investor sentiment towards the domestic currency. The Indian currency fell nearly 1 per cent for the week, its worst weekly decline since December 2022. 

The MSCI Asian stocks gauge fell by the most in a week, weighed down by Japan's Nikkei and South Korea's index. However, Hong Kong and Chinese shares were buoyed by tech stocks. European stocks were in the red, and Wall Street futures pointed to a lower open. 

In commodities, gold is edging towards a new record. The bullion was last trading at around 2,945 dollars per ounce. Even while the dollar is strong, gold prices have risen to record highs, propelled in part by speculation that Trump may slap import taxes on the precious metal. On the other hand, oil prices have taken a beating due to concerns that a trade war may slow down the world economy and reduce demand for energy.