The U.S. dollar drifted Tuesday, remaining near its recently hit three-year low with the turmoil surrounding the Trump administration’s trade policies seen hitting the world’s largest economy.
At 04:45 ET (08:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, slipped marginally to 99.395, not far from the three-year low it touched last week.
The index is down over 4% this month, set for its biggest monthly drop since November 2022.
Dollar hit by trade uncertainty
The dollar has been hit hard of late as the turmoil surrounding the Trump administration’s trade policies, with back-and-forth changes on U.S. tariffs, has shaken investor confidence in the U.S. economy.
“Markets retain a substantial risk premium attached to U.S. assets, including the dollar,” said analysts at iNG, in a note. “That ranges between 2% and 5% across different G10 currencies, in our estimates, although the recent instability in traditional correlations and unnaturally high FX volatility means those deviations shouldn’t be taken at face value.”
President Trump on Monday suggested the possibility of exemptions from the 25% tariffs on foreign vehicle imports, especially for countries like Mexico and Canada.
Earlier, the administration also granted exclusions for specific electronics, such as smartphones and laptops, mainly from China.
These actions have helped alleviate some market worries about rising trade tensions.
“Anyway, the option market is sending clear signals that markets remain heavily bearish on the dollar, and price action on Monday suggests investors are still minded to sell USD in the rallies,” added ING.
“The rationale here is that even if we have seen the worst in U.S. market dysfunctionality, a deterioration of US data is likely on the way, and the damage dealt by ‘chaotic’ trade policy decisions won’t be unwound quickly.”
Euro could take a run at $1.15
In Europe, EUR/USD traded 0.1% higher to 1.1361, with the single currency just below last week’s three-year high at 1.1474, benefiting from the chaos surrounding the Trump administration’s trade policies.
“A return to 1.15 may be the next move for EUR/USD as the euro remains a preferred channel for safe-haven flight from USD,” said ING.
That said, the European Central Bank is meeting on Thursday, and expectations are growing that policymakers will now agree to a 25-basis-point cut, bringing the ECB’s deposit rate to 2.25%.
"There is an across-the-board downward revision to the growth forecast and also because the euro has been so strong, which helps dampen inflation, (the ECB) can in the short-term focus on growth," said Principal Asset Management chief global strategist Seema Shah.
GBP/USD traded 0.4% higher to 1.3230, after the latest U.K. labor market data showed steady unemployment but with wage growth remaining elevated.
The U.K. jobless rate held at 4.4% in February, while the year-on-year rate of regular pay growth came in at 5.9%, above the revised 5.8% seen in the prior month.
The Bank of England kept borrowing costs on hold at its last meeting in March, but is widely expected to authorise a quarter-point rate cut at its May gathering given the potential hit to economic growth from the Trump administration’s new tariffs regime.
Aussie dollar soars
In Asia, USD/JPY traded marginally lower to 142.92, with the Japanese yen remaining near its strongest level in six months as demand for safe havens remained relatively high.
USD/CNY traded 0.1% higher to 7.3152, with trade tensions between China and the U.S. persisting.
AUD/USD gained 0.6% to 0.6354 after the Reserve Bank of Australia meeting minutes revealed that the board opted to maintain the cash rate in April as it assessed tariff-induced global uncertainty.
Source: Investing