US dollar falls to three-month low as tariffs and growth fears rattle markets
THE greenback fell to a three-month low on Tuesday (Mar 4) as concerns about slowing growth and the impact from tariffs on the US economy outweighed any potential boost from the ramping up of levies on Canada, Mexico and China.
US President Donald Trump’s new 25 per cent tariffs on goods from Mexico and Canada took effect, along with a doubling of duties on Chinese goods to 20 per cent, at 0501 GMT.
In response, China said that it will impose additional tariffs of 10 to 15 per cent on certain US imports from Mar 10. Canada said that retaliatory tariffs on the US would take effect on Tuesday, and Mexico is expected to follow suit.
Worries of a trade war and the hit to other countries’ economies might be expected to boost the US dollar, but recent weak economic data has weighed on the currency and bond yields in the US.
The US dollar index, which tracks the currency against six peers, fell 0.54 per cent to 105.96 – its lowest since December.
“While the US is now broadening its tariff regime to Canada and Mexico, weak domestic US activity... is preventing the dollar from strengthening on the tariff news,” said Chris Turner, global head of markets at ING.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Investors flocked to traditional safe-haven currencies the Japanese yen and Swiss franc, which were both up almost 1 per cent, as growth and tariff fears knocked global stocks on Tuesday.
The Canadian dollar was around 0.45 per cent stronger at 1.4471 per US dollar, having hit a one-month low of 1.4542 late on Monday as tariffs were confirmed.
The Mexican peso was last down roughly 0.3 per cent at 20.76 per US dollar, after earlier touching its lowest since Feb 3.
Analysts said many in the market were hoping tariffs might quickly be lifted if deals can be struck, much as the initial threat of levies against Canada and Mexico was halted in February.
“The size of initial moves lower for the Canadian dollar and Mexican peso has been relatively modest considering the scale of the tariffs that have been put in place,” said Lee Hardman, senior currency analyst at Japanese bank MUFG.
“The price action suggests that market participants remain hopeful that the tariff hikes won’t remain in place for long helping to limit trade and economic disruption.”
The euro perked up, reflecting the lack of tariffs on the European Union and a sharp narrowing of the gap between US and eurozone bond yields, which has made the US dollar less attractive.
It climbed to its highest since December at US$1.0547, up 0.5 per cent.
Eurozone government bond yields have risen relative to those in the US as Trump’s pullback from supporting Ukraine has stirred expectations of higher borrowing and spending on defence. Yields move inversely to prices.
Investors are also keeping an eye out for the European Central Bank policy meeting on Thursday, with traders pricing in another 25-basis-point cut.
US 10-year Treasury yields fell to their lowest level since October on Tuesday at 4.115 per cent as traders digested the weak data and tariff headlines.
Sterling rose to an 11-week high of US$1.2744, as the greenback slipped and was last up 0.3 per cent.
Trump said on Monday that he told leaders of Japan and China they cannot continue to reduce the value of their currencies, as doing so would be unfair to the US.
The US dollar fell 0.9 per cent against the yen to 148.17 – its lowest since October.
Speculators last week mounted their biggest ever wager that the yen will continue to rise as they position for further Bank of Japan interest rate hikes.
China’s yuan rose around 0.3 per cent to 7.265 per US dollar, aided by the central bank continuing a strengthening bias in its daily official guidance. REUTERS
Share with us your feedback on BT's products and services
