(Bloomberg) — The dollar rebounds after posting its steepest decline in 14 months amid growing expectations that President Donald Trump’s tariff plans will stoke inflation and prevent the Federal Reserve from cutting further interest rates. did.
Most Read Articles on Bloomberg
Bloomberg’s dollar gauge rose 0.7% in Asia on Tuesday after New York trade slumped after President Trump said he could impose 25% tariffs on Mexico and Canada in February. rose. Both countries’ currencies fell more than 1% against the dollar before moderating the move.
“If there are 25% tariffs on Mexico and Canada, you can be sure there will be even bigger tariffs on China soon after,” said Rodrigo Catril, a strategist at National Australia Bank in Sydney. ” he said. “The dollar has room to rise.”
Immediately after President Trump took office, the dollar fell amid expectations that he would not immediately impose tariffs. The sudden reversal that followed highlights how sensitive traders are to news about tariffs and the impact on the global economy. President Trump’s previous pledges included a gradual increase in tariffs on goods shipped from China by up to 60%, sending shockwaves through the $7.5 trillion-a-day foreign exchange market.
The risk of President Trump’s high tariff policy coupled with solid economic expansion is expected to make the Federal Reserve cautious about lowering interest rates, supporting the dollar’s resilience. Still, the future scope and timeline for actual implementation of President Trump’s protectionist trade measures remains an open question, and traders are watching closely.
Overnight index-linked swaps suggest the Fed has a 69% chance of cutting its benchmark rate multiple times this year, up from 46% on Friday. SMBC Nikko Securities and Nomura Securities both said U.S. yields could fall further.
As global spot trading resumed after a US holiday on Monday, US Treasuries rose, largely reflecting the president’s decision to avoid imposing tariffs on China on his first day in office. The US benchmark yield fell nearly 10 basis points to 4.53%.
“The market was focused on the large tariff bazooka from day one,” said Shoki Omori, chief global desk strategist at Mizuho Securities. “There is a growing sense of relief in U.S. Treasuries, especially since that hasn’t been the case with China.”
The offshore yuan fell by as much as 0.4%, along with the risk-sensitive Australian and New Zealand dollars. In a sign of strengthening support for the currency, the People’s Bank of China set the yuan’s benchmark interest rate at its highest level since Nov. 8.
