The U.S. dollar strengthened for a second consecutive day on Thursday, though it remained close to an 11-week low, as fresh tariff threats from former President Donald Trump introduced uncertainty into global trade markets.
Trump hinted at imposing a steep 25% “reciprocal” tariff on European cars and other goods while delaying previously planned levies on Mexican and Canadian imports. The shifting trade policy rhetoric kept currency traders on edge, limiting major movements in foreign exchange markets.
Uncertainty Over Tariffs Weighs on Markets
During a press conference on Wednesday, Trump suggested that his administration could push back the implementation of 25% tariffs on Mexican and Canadian goods from March 4 to April 2. However, a White House official clarified that tariffs on both nations remain in effect “as of this moment,” pending a review of their border security measures and efforts to curb the flow of migrants and fentanyl into the United States.
“It fits pretty well with our predisposition that Trump is over-threatening with tariffs but under-delivering,” said Mohamad Al-Saraf, a senior analyst at Danske Bank. “Sure, the dollar is a bit stronger, but it’s not like the first few weeks after the Trump inauguration when tariff headlines had a much bigger impact.”
The uncertainty caused the euro to retreat 0.1% to $1.0473, pulling further away from a one-month high of $1.0529 reached in the previous session. Investors are also awaiting updates on coalition government negotiations in Germany, which could influence the euro’s direction.
Dollar Gains as Treasury Yields Tumble
Despite concerns over trade policies, the dollar index edged up to 106.64, rebounding from a two-month low of 106.12 earlier in the week. However, the index remains nearly 4% below its two-year high recorded in January.
Market concerns over U.S. economic growth and inflation were amplified by recent weak economic indicators, including a slowdown in business activity and a sharp drop in consumer confidence. As a result, U.S. Treasury yields have tumbled, leading some analysts to warn of rising economic risks.
Commerzbank economists Bernd Weidensteiner and Christoph Balz cautioned in a research note, “So far, we see no reason to abandon our baseline scenario of continued solid growth; the U.S. economy still appears to have sufficient momentum. However, the real economic data for the coming months should be followed with great attention.”
Money markets currently anticipate at least two rate cuts from the Federal Reserve in 2025, with traders pricing in about 58 basis points of easing. However, a full rate cut is not expected until July.
Global Currencies Respond to Trade Tensions
The Canadian dollar remained steady near a two-week low against the U.S. dollar, while the Mexican peso firmed slightly to 20.375 per dollar. Meanwhile, the Australian and New Zealand dollars, both sensitive to global trade risks, hovered near their lowest levels in two weeks.
Against the Japanese yen, the dollar climbed 0.4% to 149.69 yen but remained close to its weakest level since early December. A decline in U.S. Treasury yields has bolstered the yen, while Japanese yields have risen on speculation that the Bank of Japan (BOJ) will continue to raise interest rates this year.
Japan’s top currency official, Atsushi Mimura, reaffirmed Tokyo’s stance that the yen’s recovery reflects a strengthening economy, suggesting that further BOJ rate hikes may be justified.
Bitcoin Rebounds from Recent Slump
In the cryptocurrency market, Bitcoin rebounded 1.7% to $85,917 after falling to its lowest level since November at $82,156.99 the previous day. The volatility in Bitcoin aligns with broader market uncertainty amid shifting U.S. trade policies and global economic concerns.
As financial markets await further clarification on Trump’s tariff strategies, traders remain cautious about potential disruptions to global trade flows. The coming weeks are likely to be pivotal in shaping currency trends and investor sentiment.