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The US dollar is weakening today, amid growing concerns that Donald Trump’s policies could push America’s economy into a contraction, and possibly a full-blown recession.

The dollar index, which tracks the greenback against a basket of rival currencies, has dropped by 0.44% today, as traders anticipate that a trade war will drive up US inflation and hurt its economy.

Sterling has risen 0.2% to $1.2724 against the dollar, its highest level since 17 December. The euro is up 0.3% at $1.052.

The dollar’s weakness comes as markets now expect the US Federal Reserve to cut interast rates three times this year. In January and February, only one or two cuts were priced in.

Investors are jumpy after a closely watched gauge of the US economy weakened yesterday.

The Atlanta Federal Reserve’s GDPNow model now estimates US GDP will shrink at an annualised rate of 2.8% in January-March, the equivalent of a 0.7% quarterly decline in activity. That helped to prompt yesterday’s losses on Wall Street.

That helped to prompt yesterday’s losses on the US stock market, even though the Atlanta Fed GDPNow can be volatile.

Kyle Rodda, senior financial market analyst at Capital.com, explains:

Wall Street tumbled off the back of the news, while the US Dollar declined as market participants began to contemplate the risks of a US recession. While much of the change is due to mechanical factors in the way GDP is calculated, a deepening trade deficit along with signs of weaker consumer spending and business activity has driven the Atlanta Fed’s GDP Nowcast to -2.8%.

Subsequently, the markets have shifted forward expectations of the next Fed rate cut to June, with May increasingly looking like a “live” meeting.

Talk of a “Trumpcession” has been growing in recent days, after the latest trade data last week showed a surge of imports as businesses tried to avoid new tariffs.

Manufacturing data yesterday showed a slowdown in US factory growth in February, with employment levels and new orders both contracting.

An index of US consumer confidence hit an eight-month low last month, while US retail sales dropped by the most in nearly two years in January.

A CBS News poll released on Sunday showed that 49% of Americans disapprove of president Trump’s handling of the economy.

Stephen Innes, managing partner at SPI Asset Management, says talk of a ‘self-inflicted “Trumpcession.”’ is on the rise:

Already queasy from a fading AI-driven rally, Wall Street is now staring down a worsening cocktail of Trump’s tariff fury, stretched equity valuations, and the cold, hard realization that the U.S. economy may be losing steam. Meanwhile, across the pond, Europe—long the ugly duckling of global markets—is suddenly the belle of the ball.

While America grapples with an economic hangover, European stocks are ripping higher, fueled by a mix of bargain-hunting, fiscal policy shifts, and the tantalizing prospect of a peace deal in Ukraine. The euro and bond yields are climbing, while the dollar and Treasuries slump—proof that global capital is rebalancing. Defence and infrastructure spending is setting the tone for a European revival, while Washington is left debating whether it’s about to stumble into a self-inflicted “Trumpcession.”

A recession, though, would mean two quarterly contactions in GDP in a row – which Paul Ashworth, chief North America economist at Capital Economics, doesn’t see happening.

He wrote last week:

Following the 0.5% m/m slump in real consumption in January and the massive 10% m/m surge in real goods imports, we now expect first-quarter GDP to contract by 1.0% annualised. Assuming that surge in imports reflects the front-running of tariffs, however, it should be more than reversed in the second quarter, when we expect GDP to rebound by 4.5% annualised.

The upshot is that a “Trumpcession” should be avoided and there is no need for the Fed to cut interest rates.