Dollar near two-week low as traders ponder Trump tariff plans

TOKYO/GDANSK: The dollar struggled to regain ground against major currencies on Wednesday, hovering close to two-week lows as a lack of clarity on President Donald Trump’s plans for tariffs kept financial markets guessing.

Trump said late on Tuesday that his administration was discussing imposing a 10% tariff on goods imported from China on February 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, eased 0.1 per cent to 108 on Wednesday, not far from the two-week low of 107.86 it touched on Tuesday. “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.

“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 0.13 per cent to 155.715 yen, edging up slightly from the one-month low it touched the day before.

INFLATION RISKS

The euro was little changed at $1.0428 and traded close to the two-week peak it touched on Tuesday.

Sterling, which reached its highest in 1-1/2 weeks in the previous session, edged down slightly to $1.235. 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 little changed at 1.4326 per U.S. dollar, following a volatile week that saw it tumble as low as 1.452 overnight for the first time since March 2020, feeling additional pressure from cooling inflation last month.

The Mexican peso gained about 0.19 per cent to 20.572 per dollar. China’s yuan weakened slightly to 7.275 per dollar in offshore trading, although that was after pushing to the strongest level since December 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.”