Dollar on defensive as US levies fuel fears
TOKYO — The dollar languished near a five-month low versus major peers on Wednesday, as worries about the US economy continued to simmer under President Donald Trump’s unpredictable trade policies.
The euro hovered close to a five-month peak on increased optimism for an end to the war in Ukraine.
The Canadian dollar endured a volatile session overnight after Trump pledged to double tariffs on steel and aluminum to 50 percent, only to reverse course just hours later.
The Bank of Canada decides policy on Wednesday, with traders fully expecting another quarter-point interest rate cut.
“Trade uncertainty persists and therefore so does market volatility,” said Kyle Rodda, senior financial markets analyst at Capital.com.
“The US growth outlook continues to deteriorate,” putting increased attention on the release of the consumer price index (CPI) later in the day, “which could be a significant source of volatility,” Rodda said.
The US dollar index, which measures the currency against a basket of six major peers, was flat at 103.47 in early Asian trade, following a 0.46-percent slide on Tuesday that took it as low as 103.21 for the first time since Oct. 16.
A run of softer US economic data continued on Tuesday with small-business confidence dropping for a third straight month in February. Investors have been on edge since Trump refrained from ruling out the possibility of a recession under his trade policies in a Sunday interview with Fox News.
Wednesday’s CPI report may be setting the market up for “a lose-lose situation”, said Julien Lafargue, chief market strategist at Barclays Private Bank.
“A higher-than-expected reading could fuel the stagflation narrative while a weaker-than-expected print could cement recession fears,” Lafargue said. “What the market really needs at this point is better visibility on growth rather than on inflation.”
The euro eased 0.05 percent to $1.0913, but remained not far from the previous session’s peak of $1.0947, the highest level since Oct. 11.
Ukraine said on Tuesday it would accept a US proposal for an immediate 30-day ceasefire in its conflict with Russia.
Europe’s single currency was already flying high on the promise of massive fiscal spending by Germany, although the situation has become more complex after the Greens vowed to block those plans and tabled rival proposals.
