US manufacturers have warned that Donald Trump’s trade war is hitting production, pushing the dollar close to a three-year low against sterling on Monday.
The greenback suffered a fresh sell-off, after the closely watched ISM survey of the manufacturing sector signalled a third monthly decline in output in a row.
The ISM purchasing managers’ index fell to 48.5% in May – below 50 signals contraction.
Comments from participants in the monthly poll underlined the damage being caused by the president’s on-off tariff policies.
“Uncertainty due to the recent tariffs continues to weigh on profitability and service. An unresolved (trade deal with) China will result in empty shelves at retail for many do-it-yourself and professional goods,” a paper producer said.
A chemicals producer reported: “Most suppliers are passing through tariffs at full value to us.” Many US companies have struggled to keep track of the rapid reversals in trade policy in recent weeks.
The dollar dipped to $1.3542 against sterling after the downbeat manufacturing survey was published, close to the three-year lows in late May. It also fell by about 0.5% against a basket of currencies.
Concern about the probable economic impact of Trump’s tariff policies intensified over the weekend, after he announced a 50% tariff on steel on Friday – up from 25%. Trump also suggested China had “violated” the terms of a 90-day pause in the trade war between the two countries.
Tariffs of 145% on Chinese exports were slashed last month to 30% for 90 days as the two sides agreed to discuss details of a wider deal. It is unclear what aspect of this truce Trump was accusing Beijing of breaching.
The status of Trump’s “reciprocal” tariffs on a string of countries remains unclear, after a US court ruled last week that he overstepped his powers in imposing them – a decision the White House is challenging.
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The dollar has repeatedly come under pressure since Trump’s “liberation day” tariff blitz in April.
At the same time, the yield on US Treasuries has risen – potentially a signal of anxiety among investors about the government’s ability to repay its debts.
The Treasury secretary, Scott Bessent, said on Sunday that the US would “never default”, amid growing concerns about the financial sustainability of plans for significant tax cuts, contained in Trump’s “big, beautiful” budget bill.
“We are on the warning track and we will never hit the wall,” Bessent told CBS, rebuffing comments by the JP Morgan Chase chief executive, Jamie Dimon, that bond markets could “crack” under the weight of US government debts.
