The US dollar weakened on Wednesday when investors reportedly fled American assets because of America’s trade policy tug-of-war with China. The dollar index slipped below the 100 mark, trading near three-year lows, also falling against nearly all Group-of-10 currencies in early London trading. 

According to the Bloomberg Dollar Spot Index, the dollar fell as much as 0.72% earlier in the day before trimming losses slightly to 0.55%. The decline comes after a brief uptick to 100.2 on Tuesday, its first gain in nearly a week.

US investors jittery over trade war

Rodrigo Catril, a strategist at National Australia Bank, says investors in the US market have taken exit positions on USD because the West’s economic situation is “uneasy.” 

“All this uncertainty and talk of more tariffs is fueling the idea of de-risking from US assets, selling the dollar,” he asserted. 

The sell-off was accelerated by new restrictions from the Trump administration on Nvidia Corp.’s chip exports to China, exacerbating the unsettlement from investors about supply chain disruptions. 

Scope Rating analysts led by Alvise Lennkh-Yunus warned that current tariff measures could trigger one of the largest peacetime trade shocks in modern history. 

“Even their full reversal, though unlikely, would not fully restore the confidence of previous alliances and supply chains, indicating a degree of durable economic loss,” the analysts noted.

The Group of Seven (G7) nations, including Japan, the UK, France, and Germany, also have the world’s deepest banking linkages with the US. A dollar depreciation situation could be more dire for their economies than it would be for China.

China holds meetings with Southeast Asia to battle US negotiations

Meanwhile, President Xi Jinping headed to Southeast Asia to strengthen Beijing’s foothold through investment and infrastructure partnerships. On Wednesday, Xi met with Malaysia’s King Sultan Ibrahim Iskandar, encouraging Chinese businesses to invest in the country. 

Xi told Malaysian officials that he supported importing more Malaysian agricultural products and accelerating joint ventures like the East Coast Rail Link.

According to Chinese state media Xinhua, Xi reiterated the need to advance cooperation in artificial intelligence, the digital economy, and green development. 

The visit is Xi’s second stop in Southeast Asia this week, following a two-day trip to Vietnam. He arrived in Malaysia late Tuesday and was received by Prime Minister Anwar Ibrahim. Per Bloomberg’s report, he will move to Cambodia from Malaysia.

Sultan Ibrahim stated via his official Facebook page that China-Malaysia cooperation has “great potential,” especially under China’s Belt and Road Initiative framework.

Xi’s latest visit to Malaysia is his first since 2013, when the two nations upgraded ties to a Comprehensive Strategic Partnership. Last year, they commemorated the 50th anniversary of diplomatic relations and promised to deepen their economic and political cooperation.

Washington is piling the pressure on these countries because they supposedly serve as intermediaries for Chinese exports to avoid tariffs. President Trump has threatened to employ more punitive measures, like import tax hikes, for those who do not comply.

Xi asks Vietnam to help fight against ‘unilateral bullying’

In Vietnam, Xi met with Communist Party Secretary-General To Lam, asking the nation to join China in battling “unilateral bullying” from the US.

“We must strengthen strategic resolve and uphold the stability of the global free trade system as well as industrial and supply chains,” he said.

Stephen Olson, a former US trade negotiator, analyzed Xi’s messaging as “a very shrewd tactical move.” 

“While Trump seems determined to blow up the trade system, Xi is positioning China as the defender of rules-based trade while painting the US as a reckless rogue nation,” Olson reckoned.

President Trump, meanwhile, made brash comments during a press conference in the Oval Office on Monday about Xi’s meetings in Southeast Asia. 

“That’s a lovely meeting. Meeting like trying to figure out, how do we screw the United States of America?” Trump said.

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