Market Shift: Dollar Plummets as Tariff Fears Ease
The US dollar is on track for its worst week in over a year, plummeting 1.83% as traders reassess the likelihood of a global trade war. The greenback’s decline is largely attributed to President Donald Trump’s comments on Thursday, which suggested that tariffs on goods from countries like China, Canada, Mexico, and the euro zone may not be as severe as initially feared.
A Friendly Conversation
Trump’s conversation with Chinese President Xi Jinping last week was reportedly amicable, leading to speculation that a trade deal between the two nations could be within reach. This development has significantly reduced concerns about a potential trade war, causing the dollar to retreat from its recent highs.
Currency Market Reaction
The dollar index fell 0.67% to 107.42, while the Chinese yuan surged to its strongest level in eight weeks, reaching 7.2363 per dollar. The euro, meanwhile, rose 0.83% to $1.0501, putting it on pace for a 2.25% weekly gain – its best performance since July 2023.
Interest Rate Expectations
Trump also expressed his desire for the Federal Reserve to cut interest rates, ahead of the central bank’s meeting next week. While the Fed is expected to keep rates unchanged, investors will be watching for any hints that a rate cut could be on the horizon if inflation continues to ease.
Economic Data
Friday’s data revealed that US business activity slowed to a nine-month low in January, despite rising price pressures. On a more positive note, existing home sales in December reached a 10-month high. In the euro zone, business activity began the new year with a modest return to growth, driven by stable services activity and an easing of the manufacturing downturn.
Central Banks in Focus
The Bank of Japan raised interest rates to their highest level since the 2008 global financial crisis and revised up its inflation forecasts. BOJ Governor Kazuo Ueda indicated that the central bank will continue to raise interest rates as wage and price increases broaden, but provided few clues on the timing and pace of future rate hikes.
Cryptocurrency Developments
Bitcoin gained 2.48% to $105,678.69, following Trump’s order to create a cryptocurrency working group tasked with proposing new digital asset regulations and exploring the creation of a national cryptocurrency stockpile. This move marks a significant shift in US crypto policy.
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