The U.S. dollar settled at three-week lows on Friday as traders felt reassured that Washington did not immediately impose tit-for-tat tariffs, while the U.S. producer price report eased concerns about inflation.
U.S. President Donald Trump ordered his economic team on Thursday to formulate plans to impose-for-tat tariffs on each country that taxes U.S. imports.
But he did not quickly unveil another round of tariffs, instead launching a weeks- or months-long investigation into tariffs imposed by other countries on U.S. goods. This reinforced expectations that there might be room for target countries to negotiate, which helped support sentiment.
The dollar rose 7% against a basket of currencies last year, as investors braced for Trump’s tariffs that threatened to ignite inflation, among other things.
Since taking office on January 20, Trump announced tariffs on Mexico, Canada, and China, but he delayed or eased them, affecting the dollar.
The euro and sterling, which are in the crosshairs of-for-tat tariffs, have risen 2% and 3%, respectively, since Trump’s inauguration.
Kathleen Brooks, director of XTB Research, said: “The lack of concern about Trump’s latest tariffs suggests that the foreign exchange market still believes President Trump is taking a stand and will ease tariffs at the last minute.”
Some traders expect tariffs to benefit the dollar, but the late schedule of the latest announcements did little to lift the dollar from its weakest level since late January after Thursday’s wholesale inflation data.
The euro rose to its highest in more than two weeks against the dollar at $1.04823, supported by optimism over possible peace talks between Ukraine and Russia.
Global markets rise as dollar falls as tariffs are postponed
Global stocks rose on Friday, while the dollar fluctuated as investors enjoyed what may be just a brief moment of relief after-for-tat tariffs were not immediately imposed by U.S. President Donald Trump, suggesting there is room for negotiations.
Trump’s plans to impose-for-tat tariffs on every country that taxes U.S. imports have raised fears of a full-scale trade war, pushing gold prices to a record high earlier this week. Gold was on the verge of gaining for the seventh consecutive week.
Trump’s directive on Thursday stopped imposing new tariffs, instead began what could take weeks or months to investigate tariffs on U.S. goods by other trading partners and then draw up a response.
“While global financial markets may tend to take some respite from the delay in imposing-for-tat tariffs immediately, it is not clear to us whether the delay necessarily reflects a lower likelihood of eventual imposition of tariffs,” analysts at Barclays said in a note.
Last week, Trump began a trade war, first imposing tariffs on Mexico and Canada and then temporarily halting them, but sticking to tariffs on Chinese goods.
Michael Brown, chief research strategist at Pepperstone, said: “Trump’s barking seems to have proven once again to be worse than his bite when it comes to trade.
However, this does not stop this boring spiral of headlines, nor the accompanying fluctuating price movement, as participants grapple with any newer story, and try to ignore it.”
European futures pointed to a lower opening after the pan-European STOXX 600 and Germany’s DAX closed at a record high on Thursday. Futures for the Nasdaq and S&P 500 rose.
GBP/USD stabilizes amid mixed economic data
The exchange rate of the British pound against the US dollar was mostly stable on Thursday with both the UK and the US releasing several economic data.
On Thursday, the pound saw a modest rise against the majority of its peers. This rise came as a result of the release of UK GDP figures for the fourth quarter of the previous year, which showed a reading of 0.1% growth, exceeding the expected figure of 0%.
Encouraging economic data helped ease some of the pessimism surrounding the UK economy this week and lowered the likelihood of a rate cut by the Bank of England.
After publication, financial markets revised expectations of interest rate cuts by the Bank of England from May to June. On Thursday, the US dollar weakened against most of its peers despite some positive US data.
The latest producer price index for January showed a lower-than-expected decline, reducing bets on a rate cut by the Federal Reserve, following higher-than-expected inflation figures on Wednesday.
In addition, the United States released the latest preliminary jobless claims report for the week ending February 8, which came in below expectations.
Despite these positive economic indicators, the US dollar continues to suffer, in part due to generally optimistic market sentiment and the US dollar’s position as a key safe-haven currency.
Looking ahead, the main driver of the GBP/USD exchange rate action on Friday is likely to be the release of the latest US retail sales index. January figures are expected to show a decline in consumer demand, with analysts predicting the index will fall from 0.4% to -0.1%. If the data confirms this expected decline, the USD could end the week on a weaker note.
