The US dollar retreated slightly on Tuesday after the administration of US President Donald Trump canceled some planned tariffs. This is despite ongoing tensions in the trade war with China. At 04:30 ET, the dollar index was down 0.5%, at 108.310 points. This decline came after the dollar reached a three-week high in the previous session.
Why the US Dollar Declined
Trump’s announcement that he would postpone the imposition of tariffs on Canada and Mexico for a month calmed concerns in global markets. An agreement was reached between the US president, Canadian Prime Minister Justin Trudeau, and the Mexican president to enhance cooperation on immigration and drug trafficking issues. Under the agreement, the imposition of 25% tariffs on goods from Canada and Mexico was postponed for 30 days.
However, the tariffs imposed on China were not postponed, as the tariffs on Chinese goods have already gone into effect. China responded to the move by imposing new tariffs on some US goods, such as cars and agricultural equipment, effective February 10.
Market Responses to Trade Tensions
The trade tensions have had a major impact on global markets. Markets have quickly shifted from extreme concern to strong buying in the affected currencies. According to analysts at ING, markets were hesitant to determine the impact of these tariffs, but after Trump’s recent developments, investors have become more cautious about future threats.
Euro and Sterling Face Challenges
Despite the dollar’s decline, the euro traded calmly, holding at 1.0345 against the US dollar. Despite the improved sentiment in the eurozone, due to expectations of reaching a deal with Washington, caution remains the norm. This slight increase in the euro reflects concerns about the continuation of the trade war with the United States.
US Dollar Swings as China Responds to Trump and Tariffs on Canada and Mexico Delayed
As for the British pound, it fell by 0.2% to 1.2433. Despite the rise in the US dollar, the British pound was not significantly affected by the US tariffs, due to the decline in UK exports to the US and China. However, markets are awaiting the Bank of England meeting to determine the direction of monetary policy.
The US dollar continues to fluctuate significantly in global markets, as it is affected by a range of economic factors and important political decisions. Markets witnessed wide movements on Tuesday, as the dollar reacted to news related to US tariffs and US President Trump’s decisions regarding Mexico and Canada, in addition to China’s response.
Delaying tariffs on Mexico and Canada
US President Donald Trump announced the postponement of the imposition of tariffs on Mexico and Canada, which contributed to a kind of relief in the markets. The United States was expected to impose 25% tariffs on goods coming from Canada and Mexico, but this measure was postponed for 30 days, which led to an improvement in sentiment in financial markets. The postponement came as a result of the three countries reaching agreements aimed at enhancing cooperation on immigration and drug smuggling issues.
China’s response to US tariffs
At the same time, there were quick reactions from China to Trump’s escalation in his trade war. China imposed tariffs on some US goods, such as cars and agricultural equipment. In a preemptive move against the US tariffs that began to be implemented. This response came after the US tariffs on Chinese goods began to take effect.
US Dollar Index Performance
The movement of the US dollar is greatly affected by these shifts in trade policy. As the US Dollar Index (DXY) shows continuous volatility in the markets.
Economic data and its impact on the dollar
With global economic pressures mounting and trade decisions shifting, the US Dollar Index is expected to remain range bound between 107.00 from the bottom and 110.00 from the top. However, these moves are expected to remain range bound, making markets hesitant to make big decisions.
On the positive side, the first barrier at 109.30 was briefly breached, but it did not hold for long. With this level regained, the next level to watch will be 110.79. On the negative side, the index is supported by the 55-day SMA at 107.75 and the October 3, 2023 high at 107.35.
Investors are also awaiting important economic data that could influence the dollar’s movement in the coming days. The US job openings report is due out today. Which could provide further insights into the state of the country’s labor market. In addition, two speakers from the Federal Reserve, Atlanta Fed President Raphael Bousik and San Francisco Fed President Mary Daly. Will speak, which could leave comments that could influence market sentiment.
Impact of these shifts on global markets
With every move Trump makes in this trade war, global markets remain on edge. These trade wars could slow global economic growth, especially if the conflict drags on. In contrast, the US dollar remains affected by protectionist decisions that could be part of a strategy to pressure US trading partners.
It is clear that Trump’s trade decisions are not only affecting the US economy. But also extending to other economies around the world. As markets try to adjust to these changes, the future remains unclear regarding the effects of this trade war. It is important for investors to follow these developments closely, as they could significantly impact global financial markets.
