Trump's Steel and Aluminum Tariffs Push Dollar Higher, Pressure Euro and Commodity Currencies
In a move that escalated global trade tensions, US President Donald Trump announced plans to impose 25% tariffs on all steel and aluminum imports. The announcement sent shockwaves through currency markets, buoying the US dollar while weighing on the euro and commodity-heavy Australian and New Zealand dollars.
Trump's announcement, which came despite last week's suspension of tariffs on Mexico and Canada, fueled fears of a full-scale trade war. China is set to retaliate with tariffs on US goods on Monday, adding to the uncertainty.
The euro fell 0.1% to $1.0317 in early trading, nearing its two-year low of $1.0125. The Australian dollar shed 0.21% to $0.6264, close to its five-year low, while the New Zealand dollar dipped 0.12% to $0.5649. The Canadian dollar weakened over 0.2%, as Canada is a major supplier of aluminum to the US.
Analysts expressed concern about the potential inflationary impact of tariffs, which could pressure the Federal Reserve to maintain higher interest rates. However, Charu Chanana of Saxo Capital Management noted that China is no longer a significant supplier of steel to the US, mitigating some inflation risks.
Investors are eagerly awaiting US inflation data on Wednesday and testimony from Federal Reserve Chair Jerome Powell later this week. Markets are currently pricing in 36 basis points of rate cuts this year, down from 42 bps after a strong jobs report on Friday.
Macquarie strategists have revised their outlook for the Fed's policy path, predicting that rates will remain unchanged in 2023, hovering between 4.25% and 4.5%.
The US dollar index, which measures the dollar's value against six major currencies, held steady at 108.23 in early trading. Sterling remained stable at $1.23915, while the Japanese yen weakened 0.4% to around 152 per dollar. The yen's decline is attributed to rising expectations of interest rate hikes by the Bank of Japan this year.