The dollar touched a fresh two-week low on Wednesday (Jan 22), 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 per cent 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 per cent.
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 per cent slide against a basket of major peers. It stabilised on Tuesday, ending flat after an attempted rebound fizzled, with US 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 per cent at 107.97.
“Tariffs have again grabbed the headlines overnight as Trump commented in the evening that his threat of a new 10 per cent tariff on China was still on the table…,” said Deutsche Bank’s Jim Reid.
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“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 per cent to 156 yen, edging up from the one-month low it touched the day before.
The euro fell 0.3 per cent in early trading, before it changed course and rose to US$1.0457, its highest since Dec 30. It was last up 0.07 per cent at US$1.0434. Sterling hit a two-week high against the greenback, but was last trading down at US$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 US 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 per cent 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 per cent tariff on China imports would be far below the 60 per cent 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 US dollar could drop further.” REUTERS
