Feb 4, 2025
The dollar loses some of its gains following the delay in tariff implementation.
The US dollar experienced a slight decline on Tuesday, giving up some of its recent gains as the Trump administration delayed several planned trade tariffs, while still confirming a trade conflict with China.
At 04:30 ET (09:30 GMT), the Dollar Index, which measures the dollar against a group of six other currencies, was down 0.5% to 108.310, after reaching a three-week high in the previous session.
Concerns about a prolonged global trade conflict lessened somewhat overnight following Trump's last-minute agreements with Canada and Mexico. Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum agreed to enhance border enforcement in response to Trump's demand for action against immigration and drug smuggling, resulting in a 30-day delay on 25% tariffs.
However, China did not receive any delay, as US tariffs on Chinese products went into effect earlier in the session. In response, Beijing announced tariffs starting February 10 on American cars, agricultural machinery, and energy shipments.
"Markets quickly shifted from trying to gauge the implications of Trump's significant protectionist actions to aggressively buying into previously affected currencies," analysts at ING noted in a report. "If markets were hesitant to fully consider the impact of tariffs until the very last moment, Trump's recent reversal may justify even more caution regarding future protectionist threats."
Euro could still face additional challenges
In Europe, EUR/USD remained mostly unchanged at 1.0345, after recovering from its lowest point since November 2022 during the prior session. While the euro received a boost from the delay of the Canadian/Mexican tariffs, any gains are likely to be hard-earned, especially as the European Union also finds itself in the crosshairs of US trade policies.
"Sentiment in the eurozone has improved due to hopes of a potential deal and the avoidance of protectionism," ING stated, "however, caution is still advisable in this regard."
"If part of Trump's reasoning for delaying tariffs on US neighbors was to avoid domestic backlash from potential immediate economic pain for US consumers, this might not apply to EU tariffs. Trump can afford to adopt a longer-term approach here, possibly keeping tariffs in place for an extended period, causing the EU some 'pain' before reaching an agreement."
GBP/USD dipped 0.2% to 1.2433, with the pound losing value after having retained most of its worth even with the dollar's sharp increase on Monday.
"The UK has little to lose from US tariffs, with UK exports to the US being less than 2% of GDP and those to China under 1%. Additionally, Trump does not seem in a hurry to impose tariffs on the UK, considering its negligible goods trade balance with the US," ING remarked.
Nonetheless, the Bank of England is set to hold a policy-setting meeting later this week, where a cut in interest rates may be considered to stimulate the struggling economy.
Offshore yuan stabilizes
In Asia, USD/CNH was down 0.2% at 7.2944, with the offshore yuan stabilizing despite the imposition of 10% trade tariffs on China, even after the delay of levies against Canada and Mexico.
President Trump is scheduled to talk with Chinese President Xi Jinping as soon as this week, according to the White House, which may pave the way for a diplomatic arrangement to prevent a larger trade conflict.
The yuan had suffered from fears of a Sino-U.S. trade war similar to the one during Trump's first term. Meanwhile, USD/JPY rose 0.3% to 155.15, following a sharp decline in overnight trading.
At 04:30 ET (09:30 GMT), the Dollar Index, which measures the dollar against a group of six other currencies, was down 0.5% to 108.310, after reaching a three-week high in the previous session.
Concerns about a prolonged global trade conflict lessened somewhat overnight following Trump's last-minute agreements with Canada and Mexico. Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum agreed to enhance border enforcement in response to Trump's demand for action against immigration and drug smuggling, resulting in a 30-day delay on 25% tariffs.
However, China did not receive any delay, as US tariffs on Chinese products went into effect earlier in the session. In response, Beijing announced tariffs starting February 10 on American cars, agricultural machinery, and energy shipments.
"Markets quickly shifted from trying to gauge the implications of Trump's significant protectionist actions to aggressively buying into previously affected currencies," analysts at ING noted in a report. "If markets were hesitant to fully consider the impact of tariffs until the very last moment, Trump's recent reversal may justify even more caution regarding future protectionist threats."
Euro could still face additional challenges
In Europe, EUR/USD remained mostly unchanged at 1.0345, after recovering from its lowest point since November 2022 during the prior session. While the euro received a boost from the delay of the Canadian/Mexican tariffs, any gains are likely to be hard-earned, especially as the European Union also finds itself in the crosshairs of US trade policies.
"Sentiment in the eurozone has improved due to hopes of a potential deal and the avoidance of protectionism," ING stated, "however, caution is still advisable in this regard."
"If part of Trump's reasoning for delaying tariffs on US neighbors was to avoid domestic backlash from potential immediate economic pain for US consumers, this might not apply to EU tariffs. Trump can afford to adopt a longer-term approach here, possibly keeping tariffs in place for an extended period, causing the EU some 'pain' before reaching an agreement."
GBP/USD dipped 0.2% to 1.2433, with the pound losing value after having retained most of its worth even with the dollar's sharp increase on Monday.
"The UK has little to lose from US tariffs, with UK exports to the US being less than 2% of GDP and those to China under 1%. Additionally, Trump does not seem in a hurry to impose tariffs on the UK, considering its negligible goods trade balance with the US," ING remarked.
Nonetheless, the Bank of England is set to hold a policy-setting meeting later this week, where a cut in interest rates may be considered to stimulate the struggling economy.
Offshore yuan stabilizes
In Asia, USD/CNH was down 0.2% at 7.2944, with the offshore yuan stabilizing despite the imposition of 10% trade tariffs on China, even after the delay of levies against Canada and Mexico.
President Trump is scheduled to talk with Chinese President Xi Jinping as soon as this week, according to the White House, which may pave the way for a diplomatic arrangement to prevent a larger trade conflict.
The yuan had suffered from fears of a Sino-U.S. trade war similar to the one during Trump's first term. Meanwhile, USD/JPY rose 0.3% to 155.15, following a sharp decline in overnight trading.