The dollar touched a two-week low on Wednesday as a lack of clarity on President Donald Trump’s plans for tariffs kept financial markets guessing and left the greenback struggling to regain ground against major currencies.
Trump said 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%. He also vowed duties on European imports, without providing further details.
The dollar started the week with a 1.2% slide against a basket of major peers, stabilized on Tuesday, but ended the day flat after an attempted rebound fizzled. The dollar index, which tracks the currency against six top rivals, touched its lowest since January 6 at 107.75 on Wednesday, paring an earlier rise in the index. It was last down 0.15% at 107.97.
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 fueled 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 euro fell 0.3% in early trading, but later rose to $1.0457, its highest since December 30. It was last up 0.07% at $1.0434. Sterling hit a two-week high against the greenback but was last trading down at $1.2351.
The Canadian dollar was slightly weaker at 1.4346 per US dollar, following a volatile week that saw it tumble as low as 1.4520 overnight for the first time since March 2020, feeling additional pressure from cooling inflation last month. The Mexican peso gained about 0.3% to 20.547 per dollar.
A 10% tariff on China imports would be far below the 60% rate he mentioned in his campaign, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. On top of this, the general sense that Trump is not pursuing maximalist trade protectionism in his early actions, but appears to be positioning for trade negotiations, suggests that the US dollar could drop further.