Economic Update – Follow-up
On Tuesday, the US dollar experienced an uptick, driven by heightened demand for safe-haven assets following remarks from President Donald Trump regarding the implementation of customs duties on imports from Mexico and Canada.
The dollar had hit its lowest point in more than two months against a basket of major currencies on Monday.
During a press briefing, Trump reaffirmed that the customs duties aimed at imports from Canada and Mexico would take effect “on time and on the appointed date,” despite the ongoing efforts from both nations to bolster border security and curb the illegal smuggling of fentanyl into the United States. These duties are set to impact imports exceeding $918 billion by the March 4 deadline.
There was widespread speculation that America’s largest trading partners could convince the Trump administration to delay the imposition of these tariffs.
Trump’s statements have spurred demand for traditional safe-haven assets such as gold and US Treasury bonds, supporting the dollar, which had decreased by approximately three percent from its peak in January. This decline aligns with subdued US economic reports fueling concerns over growth prospects.
Market Updates
The euro remained stable at 1.04672 dollars, reflecting a slight dip from its recent monthly high following the German elections. The British pound settled at 1.2618 dollars, also down from a two-month high recorded the previous day.
The Japanese yen closed at 149.5 per dollar, bolstered by market expectations for additional interest rate hikes from the Bank of Japan, having recently reached its strongest level since mid-December.
In light of these developments, the dollar index, which measures the currency against six major counterparts, rose to 106.6, recovering from a two-month low of 106.1 recorded the day before.
“In recent weeks, US economic data has led to a perception that the country may have lost its exceptional economic standing. Whenever there is aversion to risk in stock markets, the dollar tends to regain its status as a safe haven,” noted a market analyst.
“As these customs duties draw closer, it is challenging to anticipate a significant rebound in risk sentiment, which should maintain the dollar’s defensive appeal,” they added.
The Canadian dollar reached its weakest level in over a week at 1.4257 to the US dollar; however, it has remained above the 1.4792 mark seen on February 3 following Trump’s initial tariff announcement on Canada.
In Europe, the political situation in Germany remains in focus, with newly-elected Chancellor Friedrich Merz aiming to swiftly form a government amidst challenging coalition negotiations and the potential for a fragmented parliament influenced by the rise of far-right and far-left parties.
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