Dollar Rises Slightly Amid Renewed Concerns Over Trump Tariff Policies

SINGAPORE: The dollar strengthened on Monday as traders considered the implications of U.S. President Donald Trump's tariff proposals at the beginning of a week where the Federal Reserve is anticipated to keep interest rates unchanged. Last week, the dollar experienced its lowest performance since November 2023 as tariff concerns diminished, but the anxieties returned as the U.S. and Colombia stepped back from the edge of a trade conflict. Charu Chanana, chief investment strategist at Saxo, noted that the tensions in Colombia indicated it was probably too early to dismiss the risks associated with tariffs.

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Dollar rises amid renewed Trump tariff concerns

A threat from Trump regarding tariffs on Colombia to penalize it for not allowing military flights with deportees led the Bogotá government to threaten counter-tariffs. However, the White House subsequently stated that the South American country had consented to take in military planes transporting deported migrants. The Mexican peso, an indicator of tariff concerns, fell by 0.7 per cent to 20.409 per dollar, while the Canadian dollar showed slight weakness at $1.4385. Trump mentioned last week that he could levy tariffs on goods from Canada and Mexico starting Feb. 1. In other locations, the euro decreased by 0.2 per cent to $1.046725 before a European Central Bank policy meeting this week, which is anticipated to reduce borrowing expenses. Sterling was last quoted at $1.24505.

Dollar Holds Steady as Tariff Concerns Weigh on Market Sentiment

This left the dollar index, which gauges the U.S. currency against six benchmarks, at 107.6, remaining near the one-month low it reached last week. The index has increased by almost 4 per cent since the U.S. election in early November. Worries over the potential for elevated tariffs on products from nations such as China, Canada, Mexico, and the eurozone have heightened fears of a resurgence in inflation, leading to an increase in Treasury yields and the value of the U.S. dollar in recent months.

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Christopher Wong, a currency strategist at OCBC, noted that the lack of immediate tariffs is significantly contributing to bolstering risk sentiment and restraining dollar bulls. "Nonetheless, tariff issues persist to a degree, and declines in the dollar may continue to receive support before the Feb 1 deadline set by Trump for Canada, Mexico and China," he mentioned, pointing to the tariffs he plans to impose on these nations. The standard U.S. 10-year yield decreased 3 basis points to 4.593 per cent during Asian trading hours.