Dollar Eases Losses as Trump’s Trade War Begins
The dollar pared losses as the Trump administration’s sweeping tariffs on Canada, Mexico and China took effect, whacking global risk sentiment and further dimming investor expectations of US growth in the months ahead. The haven Swiss franc and Japanese yen led Group-of-10 gains versus the greenback.
The Bloomberg Dollar Spot Index falls as much as 0.7%, then pares decline to 0.2%.
“We attribute the muted, and in some cases backwards, dollar response to tariffs to two main factors: disbelief and rate relief,” Goldman Sachs strategists including Michael Cahill wrote Tuesday.
“Whereas the first tariff announcements were taken as a small hit to growth but near-term inflation support, these have instead been treated as an added source of near-term policy uncertainty when the US data are already showing signs of looking a bit tired from this pressure,” Cahill and team added.
Government debt rallies across G-10: Treasury’s 10-year yield falls 1bpp to 4.16% and traders bump up Fed cut pricing for 2025.
Retaliatory measures from Canada, Mexico and China enter into effect; Canada imposes phased levies on $107 billion of US goods while China enacts tariffs as high as 15%; Mexico’s Claudia Sheinbaum said they will announce counter-measures on Sunday.
EUR/USD gains 0.4% to 1.0534 and reaches fresh 2025 high after the European Union said it would propose extending loans to increase defense spending in the region.
“There is some runway for the EUR to strengthen,” noted Shaun Osborne at Scotiabank. “Recall that the EUR remains quite significantly below our modeled short-term fair value (1.0845) amid narrowing EZ/US rate differentials and relatively stronger European equity market returns in recent months”.
Common currency trades just above 100-DMA seen at 1.0509.
Yen and Swiss franc lead G-10 advance on haven demand.
USD/JPY falls 0.5% to 148.77, earlier touched lowest since Oct. 9.
USD/CHF down 0.8% to 0.8899, weakest since Dec. 16.
Source : Bloomberg
