Dollar Rises as Tariff Risk at Forefront; Yen Falls
The dollar advances for a second day after US President Donald Trump said he wants universal tariffs that are “much bigger” than 2.5%. All currencies in the Group of 10 weakened against the greenback, with the yen among the worst performers.
The Bloomberg Dollar Spot Index rises as much as 0.5% before paring the advance.
The White House reiterated the deadline of Feb. 1 for potential tariffs on Canada and Mexico.
“Dollar continues to get whipsawed by tariff noise but make no mistake, tariffs are coming,” said Win Thin, global head of markets strategy at Brown Brothers Harriman. “Whatever the tariff plan is, the strong dollar story remains intact”.
“Above-trend growth and elevated inflation will keep the Fed on hold for now,” he said.
US orders and shipments for business equipment both rose in December by more than forecast, pointing to firmer investment going into the new year. US consumer confidence unexpectedly fell in January to a four-month low.
USD/JPY up 0.7% to 155.64 after falling 1% the day before; the BOJ’s sensitivity to tariff developments weighs on the yen.
USD/CAD rose 0.2% to 1.4404.
“For USD/CAD, we see little tariff risk priced in,” strategists at TD Securities wrote in a note.
“We look for the BOC to cut 25bps to 3.00% as it attempts to balance a stronger economic outlook against heightened trade uncertainty,” they said. The BOC “will want to retain optionality going forward, but look for it to leave the door open to a pause”.
Christian Lawrence at Rabobank, last quarter’s most accurate loonie forecaster in Bloomberg’s rankings, expects two more BOC rate cuts after Wednesday’s.
If the US takes a limited and more nuanced approach to tariffs, which is his base-case, he sees USD/CAD at 1.48 around mid-year. However, with steeper tariffs, he envisions will put the pair at C$1.60, he explained.
EUR/USD fell 0.6% to 1.0428. AUD/USD declined 0.7% to 0.6248.
Source: Bloomberg
