The dollar slipped slightly on Wednesday in choppy trading as uncertainty surrounding President Donald Trump’s tariff plans kept financial markets on edge.
Trump stated late Tuesday at the White House that his administration was considering imposing a 10% tariff on Chinese imports starting February 1, the same day he had earlier mentioned that Mexico and Canada would face levies of around 25%. He also pledged to introduce duties on European imports, though without offering further specifics.
Despite these threats, the absence of concrete plans from Trump’s first day in office led to a 1.2% decline in the dollar against a basket of major currencies at the start of the week. The currency stabilized on Tuesday, closing flat after an attempted rebound stalled, with U.S. officials indicating that any new taxes would be implemented cautiously.
The dollar index, which measures the currency against the euro, yen, and four other key rivals, was down 0.14% at 108 as of 0054 GMT.
The euro edged down 0.07% to $1.0420, while the yen saw a slight increase to 155.40 per dollar.
“Although Trump threatened tariffs up to 25% on Mexico and Canada, he refrained from implementing them, despite signing several executive orders,” said Tony Sycamore, an analyst at IG.
“His decision not to target China is seen as a potential indication of a more cautious stance on tariffs than what was promised during his campaign, lowering inflation risks and reducing the likelihood of aggressive actions from the Federal Reserve.”
Traders are now anticipating a quarter-point Fed interest rate cut by July, with another cut by the end of the year considered uncertain.
Elsewhere, there is increasing speculation that the Bank of Japan will raise interest rates by a quarter point on Friday, which is supporting the yen.
The Chinese yuan held steady at 7.2735 per dollar in offshore trading, after reaching its strongest level since December 11 at 7.2530 on Tuesday.
“Imposing a 10% tariff on Chinese imports would be much lower than the 60% rate Trump suggested during his campaign,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
“Moreover, there is a growing sense that Trump is not pursuing an extreme trade protectionist approach in his initial actions, but is instead positioning for trade negotiations,” Tan added.
“Altogether, these factors suggest the U.S. dollar could decline further.”
The Canadian dollar slipped by about 0.1% to C$1.4335 per U.S. dollar, following a volatile week that saw it drop as low as C$1.4520 overnight for the first time since March 2020, pressured further by a slowdown in inflation last month.
The Mexican peso also edged down 0.1% to 20.6350 per dollar.
