FOREX-Euro, yen surge vs dollar as investors grapple with tariff aftermath

By Laura Matthews and Yadarisa Shabong

April 3 (Reuters) - The euro and the Japanese yen soared against the dollar on Thursday, as investors grappled with how U.S. President Donald Trump's far-reaching tariffs will impact global trade and economic growth.

Investors continue to flock to safe-haven units such as the yen and Swiss franc as the dollar weakened to six-month lows against both those currencies.

"The takeaway there is that the U.S. doesn't care about growth, at least short-term growth, in the way that it always has," said Adam Button, chief currency analyst, ForexLive.

"The market wants to invest in the fastest growing places, and the U.S. administration is showing that it is not trying to maximize growth, or they have a different idea about how to get there. And I think that's rattled the market."

The highly anticipated tariff announcement sent shockwaves through markets, sinking global stocks and sending investors into the safety of bonds as well as gold, fearing that a full-blown trade dispute could trigger a sharp global economic slowdown and fuel inflation.

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 dollar, meanwhile, showed little reaction to weaker-than-expected data from the Institute for Supply Management (ISM) on Thursday, showing the U.S. services sector slowed to a nine-month low in March, amid uncertainty caused by import tariffs.

That report adds to downbeat consumer and business surveys, as well as consumer spending and inflation reports that raised stagflation concerns.

Meanwhile, the number of Americans filing new applications for unemployment benefits fell last week, showing continued stability in the labor market.

"The data isn't a factor right now. Any data that we get today is backward looking, and we're now looking forward to a reshaping of the global trading system and trying to conceptualize if it will last and what it will mean," Button said.

The euro, hitting a six-month high, was last trading up 2.4% at $1.1109, and saw its biggest intraday advance since December 2015 EUR=EBS. The dollar fell 2.6% on the Japanese yen to 145.45, and sank 3.03% on the Swiss franc to 0.8554 franc CHF=EBS.

Both safe havens were at their strongest on the greenback in six months.

Britain's pound was up 1.11% to $1.3155. GBP=D3

CRISIS OF CONFIDENCE

Deutsche Bank warned on Thursday of the risk of a crisis of confidence in the U.S. dollar, saying major shifts in capital flow allocations could take over from currency fundamentals and currency moves become disorderly.

Trump has already imposed tariffs on aluminium, steel and autos, and increased duties on all goods from China.

"The weakness in the U.S. dollar may persist as the reciprocal tariffs imposed by President Donald Trump raise the threat of a recession in the U.S.," said David Song, senior strategist, Forex.com. He added that the weak ISM data may push the Federal Reserve to further unwind its restrictive policy.

Investors are worried that some U.S. 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.

China's onshore yuan CNY=CFXS slid to its weakest level against the dollar since mid-February. China's offshore yuan CNH=D3 also hit a two-month low against the dollar, but later steadied. The dollar was last down 0.2% versus the yuan at 7.2866.

The Mexican peso MXN= and Canadian dollar CAD=D3 strengthened, with the U.S. dollar more than 1% weaker against both.

Canada and Mexico, the two largest U.S. trading partners, already face 25% tariffs on many goods and will not face additional levies from Wednesday's announcement.