Dollar Firms on Trump's Tariff Announcement

On Tuesday, the US dollar strengthened following President Donald Trump's announcement of substantial tariff increases on steel and aluminum imports. Trump also stated that additional reciprocal tariffs on other countries would be announced in the coming days.

In Asian trading, currency movements were relatively modest compared to Monday's volatility. Trading was subdued due to a public holiday in Japan.

The White House confirmed that the 25% tariffs on steel and aluminum imports would take effect on March 4th. The US dollar rose 0.13% against the Canadian dollar, extending gains from the previous session. However, the Canadian dollar remained below its 22-year low reached earlier in February.

The euro declined 0.05% to $1.0300, while sterling dropped 0.07% to $1.2355. The Japanese yen appreciated 0.2% to 151.70 per dollar.

Market participants are awaiting Federal Reserve Chair Jerome Powell's testimony later today and the release of US inflation data on Wednesday. These announcements are expected to provide insights into the interest rate outlook in the world's largest economy.

"The dollar's rally has paused, leaving it vulnerable to sideways trading in the short term," said Matt Simpson, senior market analyst at City Index.

"Traders are anticipating Powell's testimony and the CPI report, which could bolster the US dollar by week's end," he added.

Recent statements by Fed officials suggest a cautious approach to further rate cuts, as they assess the potential impact of Trump's policies on economic growth and inflation. Futures markets indicate that less than 40 basis points of rate cuts are currently priced in by year-end.

Against a basket of currencies, the US dollar remained steady at 108.35, holding its modest gains from Monday. The Australian dollar declined 0.08% to $0.6272. Prime Minister Anthony Albanese stated that Trump agreed to consider exempting Australia from the steel and aluminum tariffs during a phone call.

The New Zealand dollar depreciated 0.17% to $0.5633.