Dollar Drifts Amid Trade Uncertainty
On Wednesday, the dollar traded with indecision, hovering slightly lower. Financial markets remained in limbo due to the lack of clarity surrounding President Donald Trump's tariff plans.
Late Tuesday, Trump hinted at imposing a 10% tariff on Chinese imports starting February 1st, while Mexico and Canada could face levies near 25%. He additionally threatened European imports, but provided no specifics.
Despite these threats, the dollar began the week on a weak note, sliding 1.2% against major currencies. However, it stabilized on Tuesday, closing flat after an attempted rebound.
The dollar index, which tracks the currency against the euro, yen, and other peers, was down 0.14% at 108 as of 0054 GMT. The euro lost 0.07% to $1.0420, while the yen gained marginally to 155.40 per dollar.
"Trump's threats of up to 25% tariffs on Mexico and Canada were not implemented despite his executive orders," said Tony Sycamore, an analyst at IG. "China's omission suggests a potentially more cautious approach to tariffs, mitigating inflation concerns and reducing the likelihood of hawkish Fed actions."
Traders anticipate a Fed rate cut of 0.25% by July, with another potential reduction by year-end being seen as a toss-up.
Meanwhile, the Bank of Japan is expected to raise rates by 0.25% on Friday, boosting the yen.
China's yuan remained steady at 7.2735 per dollar in offshore trading.
"10% tariffs on China would fall significantly below the 60% rate Trump mentioned during his campaign," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. "There is a general perception that Trump is not pursuing maximalist trade protectionism, but rather positioning for negotiations. This suggests the dollar could potentially decline further."
The Canadian dollar weakened by 0.1% to C$1.4335 per greenback, following a volatile week. The Mexican peso also dipped 0.1% to 20.6350 per dollar.