USD: Dollar hits 2-week low amid Trump tariff plans

TOKYO/GDANSK: The US Dollar (USD) touched a fresh two-week low on Wednesday, as a lack of clarity on President Donald Trump’s plans for tariffs kept financial markets guessing and left the greenback struggling to regain ground against major currencies.

Trump said late on Tuesday that his administration was discussing imposing a 10% tariff on goods imported from China on Feb. 1, the same day that he previously said Mexico and Canada could face levies of around 25%.

He also vowed duties on European imports, without providing further details.
Despite those threats, a lack of specific plans from Trump’s first day in office saw the dollar start the week with a 1.2% slide against a basket of major peers. It stabilized on Tuesday, ending flat after an attempted rebound fizzled, with U.S. officials saying any new taxes would be imposed in a measured way.

The dollar index , which tracks the currency against six top rivals, touched its lowest since Jan. 6 at 107.75 on Wednesday, paring an earlier rise in the index. It was last down 0.15% at 107.97.

“Tariffs have again grabbed the headlines overnight as Trump commented in the evening that his threat of a new 10% tariff on China was still on the table…,” said Deutsche Bank’s Jim Reid.

“Trump’s comments leave plenty of near-term uncertainty even though the trade investigations from his day 1 executive orders will take some time to play out.”

Trump on Monday signed a broad trade memorandum, ordering federal agencies to complete comprehensive reviews of a range of trade issues by April 1.

The greenback rose 0.3% to 156 yen , edging up from the one-month low it touched the day before.

INFLATION RISKS

The euro fell 0.3% in early trading, before it changed course and rose to $1.0457, its highest since Dec. 30. It was last up 0.07% at $1.0434.

Sterling hit a two-week high against the greenback, but was last trading down at $1.2351.
Analysts have said that Trump’s policies on immigration, tax and tariffs will likely boost growth but also be inflationary, but the more cautious tariff approach has fuelled some hopes that inflation risks could be more limited.

Traders expect a quarter-point Fed interest rate cut by July, while another reduction by year-end is considered a coin toss.

The Canadian dollar was slightly weaker at 1.4346 per U.S. dollar, following a volatile week that saw it tumble as low as 1.4520 overnight for the first time since March 2020, feeling additional pressure from cooling inflation last month.

The Mexican peso gained about 0.3% to 20.547 per dollar.

China’s yuan held steady at 7.272 per dollar in offshore trading, after pushing to the strongest level since Dec. 11 on Tuesday at 7.2530.

“A 10% tariff on China imports would be far below the 60% rate he mentioned in his campaign,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“On top of this is the general sense that Trump is not pursuing maximalist trade protectionism in his early actions, but appears to be positioning for trade negotiations,” Tan said.

“Altogether these suggest that the U.S. dollar could drop further.”