The U.S. dollar saw a slight increase on Friday, buoyed by safe-haven demand ahead of President Donald Trump’s looming tariff announcements. However, it was still on track for a monthly loss, as market sentiment weighed the tariff risks against a weakening U.S. growth outlook.
The Japanese yen, on the other hand, was poised to close the month with a gain of over 3.6%, marking its strongest performance since July. This rally came amid growing expectations that the Bank of Japan (BOJ) may raise interest rates further this year.
At the time of writing, the yen was 0.04% higher at 149.65 per dollar, recovering slightly after recent data revealed a slowdown in core inflation in Tokyo for February. Rodrigo Catril, senior currency strategist at National Australia Bank (NAB), commented on Japan’s economic outlook, noting that while inflation data suggests a normalization of monetary policy could be on the horizon, the BOJ will likely proceed cautiously given the uncertain global environment.
Elsewhere, the Australian dollar dropped to its lowest level in over three weeks at $0.62305, having fallen more than 1% in the previous session. For the week, the Aussie was poised to lose nearly 2%, although it showed a slight monthly gain of 0.3%. Meanwhile, the euro struggled at a two-week low of $1.0389 and was on track for a 0.6% weekly decline, leaving its monthly gain at just 0.36%.
The risk-off sentiment in currency markets followed Trump’s announcement on Thursday that 25% tariffs on goods from Canada and Mexico would take effect on March 4, alongside an additional 10% levy on Chinese imports. This announcement defied market expectations of a delay in implementing the tariffs and led to heightened volatility.
The U.S. dollar briefly surged above the 7.30 mark against the Chinese yuan in the offshore market, reaching 7.2966. The Canadian dollar, after falling 0.7% in the previous session, saw a slight recovery to C$1.4431. However, the loonie was set to end the week with a decline of approximately 1.5%.
Despite the brief dollar rebound, the greenback was still hovering near a one-week peak against a basket of currencies, with the dollar index standing at 107.24 after jumping nearly 0.9% on Thursday. However, it was still on track for a monthly loss of 1.1%, its worst performance since August. This decline was driven by concerns over the health of the U.S. economy, which have led traders to increase bets on additional Federal Reserve rate cuts later this year. These expectations, coupled with falling U.S. Treasury yields, have exerted downward pressure on the dollar.
Catril of NAB noted that, despite the risk aversion and volatility in the market, it’s the growth outlook that is currently dominating, pushing yields lower. “The low levels of volatility are more a reflection of uncertainty and delayed decisions rather than a sign of market comfort with Trump’s actions,” he remarked.
In other developments, the British pound edged up 0.04% to $1.2607, on track for a 1.7% monthly gain, its strongest performance in five months. The pound has benefitted from expectations that the Bank of England will cut rates less aggressively than other central banks, particularly the European Central Bank.
Meanwhile, the New Zealand dollar dipped 0.12% to $0.5625, set to lose over 2% for the week, marking its worst weekly performance in five months.
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