The pound and the euro raced to six-month highs against the dollar yesterday on fears Donald Trump’s trade war will plunge the US into recession.

As panic mounted amid warnings of an economic ‘spiral of doom’, sterling topped $1.32 for the first time since October while the single currency rose above $1.11.

The greenback was also sharply lower against the Japanese yen and Swiss franc and has now fallen more than 6pc against a basket of global currencies in 2025 – its worst start to the year since 1995. It has given up all the gains made since Trump’s election win in November.

‘The blowback of US tariffs on to the US domestic economy leaves the dollar naked,’ warned Chris Turner, global head of markets at banking group ING.

Investors dumping the dollar flocked to the relative safety of government bonds, pushing prices up and yields lower.

The yield on ten-year UK gilts fell towards 4.5pc having touched 4.8pc last week in the wake of Chancellor Rachel Reeves’ Spring Statement.

Bluster: While Trump insisted the tariffs would ‘make America wealthy again’, analysts warned they could tip the US into recession

The equivalent yield on US Treasuries dropped to 4 per cent for the first time since October.

The latest ructions came after the US President slapped a baseline 10 per cent tariff on imports from around the world and added eye-watering top-ups on dozens of trade partners.

While Trump insisted tariffs would ‘make America wealthy again’, analysts warned they could tip the US into recession.

‘This is how you sabotage the world’s economic engine while claiming to supercharge it,’ said Nigel Green of the global financial advisory Devere Group.

Countries are now drawing up plans for tit-for-tat tariffs as protectionism sweeps the globe. ‘It’s clear countries will think about how to retaliate in a politically astute way,’ said Justin Onuekwusi, chief investment officer at St James’s Place.

‘Significant retaliation could lead to a tariff spiral of doom that could be the growth shock that drags us into recession.’ 

The slump in the dollar and government bond yields suggests investors are more concerned about a downturn in the US economy than the inflationary impact of tariffs pushing up the price of imported goods.

George Brown, an economist at Schroders, said tariffs put the US Federal Reserve, the central bank, ‘between a rock and a hard place’ as it is left to grapple with weaker economic growth and higher inflation.

Chris Iggo, chief investment officer at AXA Investment Managers, said: ‘The US’s more aggressive stance on trade appears to be turning global investor sentiment away from the world’s largest economy.

‘The Fed is now faced with the prospect of lower growth and higher inflation. The market is suggesting growth fears will dominate and is pricing-in almost four rate cuts this year.’

Hugh Gimber, global market strategist at JP Morgan Asset Management, added: ‘There was this assumption that this administration would be brilliant for the US economy and difficult for the rest of the world.

‘It’s increasingly evident this policy mix in the US is more difficult for the US itself.’

Banks lead global stock market rout

 By PATRICK TOOHER

Banks bore the brunt of the stock market sell-off yesterday amid fears of a global recession.

The hardest-hit were shares in Standard Chartered, which was down 13.3 per cent, and HSBC, off by 8.9 per cent – which led the fallers in the FTSE 100 index.

Both lenders are heavily exposed to Asia, where sweeping tariffs on goods entering the US are among the steepest.

They were closely followed by Barclays, which fell 8.7 per cent.

Analysts said it was exposed to any fall in deal activity which would affect its investment banking unit.

Reduced demand for loans and the prospect of deeper and faster interest rate cuts could also squeeze profits, they added.

All three banks have substantial operations in the US – where shares in local lenders were also hammered.

JP Morgan, the biggest bank in the US, fell 7.1 per cent. Goldman Sachs was 9 per cent lower, Morgan Stanley was down 9.7 per cent and Citigroup slumped 12 per cent.

Also in the doghouse was JD Sports, whose shares dived 7.9 per cent. The sports fashion retailer has been expanding in the US, which is now its biggest market.

Other leisurewear retailers such as Nike and Lululemon also traded sharply lower.