THE greenback was roughly unchanged on Tuesday (Apr 1) as investors braced for reciprocal tariffs that US President Donald Trump is due to announce.
Markets will monitor the US Job Openings and Labor Turnover Survey (JOLTS) and the ISM manufacturing index later in the session, both of which could provide further insights into how uncertainty in US trade policy is hurting its economy.
Trump announced late on Sunday that all countries would face new tariffs this week, though he provided no specific details. He previously talked about 25 per cent tariffs against European goods.
White House aides have drafted a proposal to impose tariffs of around 20 per cent on most imports to the United States, the Washington Post reported on Tuesday.
“We saw a brief and marginal decline of the euro dollar after the press report about 20 per cent tariffs,” said Francesco Pesole, rate strategist at ING.
“Markets remain cautious as they expect the weakness of the US economy to discourage an escalation.”
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European Commission President Ursula von der Leyen said the European Union was open to negotiations with the US on trade, but would retaliate strongly if necessary.
“We expect roughly a one-month delay in (tariff) implementation, leaving space for negotiation,” said Claudio Irigoyen, head of global economics at Bank of America.
The US dollar index, which measures the US currency against six rivals, was 0.03 per cent higher at 104.19.
“The risk of high tariffs disrupting trade and economic activity would potentially offset any US federal revenue gains that the Trump administration seeks to use to further domestic policies,” said Mark Haefele, global wealth management chief investment officer at UBS.
Geopolitical tensions remain in focus as the Chinese military said it conducted drills in waters to the north, south and east of Taiwan on Tuesday.
The euro dropped 0.1 per cent at US$1.0805, after gaining 4.5 per cent in the first quarter of the year, its strongest quarterly performance since October-December in 2022, thanks mainly to Germany’s commitment to sharply increase fiscal spending.
Investors recently boosted their bets on future European Central Bank (ECB) rate cuts due to tariff fears and weak economic data, driving bond yields and the single currency lower.
Money markets priced in an approximately 80 per cent chance of an ECB easing move this month, amid mixed remarks from central bank officials.
ECB’s Fabio Panetta, who markets regard as a dovish policymaker, said the central bank needs to be cautious in reducing rates. Finnish Central Bank chief Olli Rehn said it should cut in April if inflation keeps moving in line with its projection.
“We remain generally cautious about following any euro/dollar rally into the tariff event and instead see mostly downside risks, barring any meaningful US data surprise,” ING’s Pesole argued.
The Japanese yen was 0.30 per cent stronger at 149.50 per US dollar on Tuesday. The yen rose nearly 5 per cent against the dollar in the January-March period on growing bets that the Bank of Japan (BOJ) would hike interest rates again.
Data on Tuesday showed business sentiment among big Japanese manufacturers worsened in the three months to March, a sign escalating trade tensions were already taking a toll on the export-reliant economy and complicating the BOJ’s next move.
The Australian dollar was flat at 0.6244 after the central bank left rates unchanged as expected. It hit 0.6217 on Monday, its lowest since March 4. REUTERS
