Currencies in Limbo as Markets Await Tariff Clarity
The US dollar is stuck in neutral, struggling to find direction as investors wait for concrete announcements on tariffs from President Donald Trump. With a slew of central bank policy decisions on the horizon, currencies are bracing for impact.
Central Banks Take Center Stage
The Bank of Japan is widely expected to raise interest rates at the end of its two-day meeting on Friday, while the US Federal Reserve and European Central Bank will make their rate decisions next Wednesday and Thursday, respectively. These moves could significantly shift the currency landscape.
Dollar Index Stagnant
The dollar index, which measures the currency against six major rivals, including the euro and yen, remains largely unchanged at 108.34. This follows a steep 1.2% slide on Monday, sparked by Trump’s lack of tariff announcements on his first day in office.
Euro and Yen in Focus
The euro slipped 0.09% to $1.04, with the European Central Bank expected to cut rates by a quarter point next week. Meanwhile, the yen held steady at 156.44 per dollar, with markets pricing in a 95% chance of a quarter-point hike from the Bank of Japan on Friday.
Trump’s Tariff Threats Loom
So far this week, Trump has floated tariffs of around 25% on Canada and Mexico, and 10% on China from February 1. He has also promised duties on European imports, although details remain scarce. Trump’s speech at the World Economic Forum in Davos, Switzerland, will be closely watched for any clues on his tariff plans.
Market Sentiment Fragile
Currency strategists are cautious, noting that risk sentiment remains fragile and could quickly turn sour if Trump adopts a more aggressive tone. The dollar has fallen around 0.5% against the yuan since Trump’s inauguration, as markets await clarity on tariff plans.
China’s Insurers Boost Market
China’s announcement to channel hundreds of billions of yuan into shares has helped calm market nerves, while a call between Trump and Chinese President Xi Jinping on Friday has also contributed to a softer tone. The Canadian dollar and Mexican peso, which had a volatile start to the year due to tariff concerns, are also closely watching Trump’s next moves.
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