The US dollar rose significantly on Friday after new threats from US President Donald Trump to impose additional tariffs. While the euro remained weak after the European Central Bank cut interest rates. The market responded quickly to these developments, which clearly affected the movements of global currencies.
At 04:00 ET (09:00 GMT), the dollar index, which measures the US currency against a basket of six major currencies, rose by 0.5% to 108.160. This increase came after new statements made by Trump regarding imposing tariffs on Mexico and Canada. The US dollar is one of the currencies most affected by this news, as trade threats create uncertainty in global markets.
The dollar supported by the threat of tariffs
The US dollar benefited from the statements issued by President Trump, in which he confirmed that the United States will impose a 25% tariff on imports from Mexico and Canada. The move could lead to major changes in trade relations between the three countries, as Mexico and Canada are important trading partners of the United States.
According to analysts at ING, the weekend will be the first test of President Trump’s seriousness in his threats regarding the imposition of tariffs. Mexico and Canada will face a deadline on Saturday, and these tariffs are expected to be implemented if the two countries do not adhere to certain agreements with the United States.
Markets are reacting cautiously to these threats. If the tariffs are implemented, the Canadian and Mexican dollars could face significant declines in their values. For example, the USD/CAD pair fell by 0.1% to 1.4465, while USD/MXN fell by 0.1% to 20.6810, after sharp price jumps following Trump’s announcement.
In light of recent developments, it is clear that global markets are greatly affected by political and economic statements.
US Federal Reserve decisions and their effects on the dollar
On the other hand, the US Federal Reserve left its benchmark interest rate unchanged at its last meeting, settling in the range of 4.25% – 4.50%. This move came at a time when inflation in the United States is witnessing some decline, which makes the Fed’s decisions more cautious. In a statement issued by the Federal Reserve, it was confirmed that inflation has made progress towards the Fed’s target of 2%.
Speaking of the US economy, the data on the personal consumption expenditures index will be released later in the session. This index serves as the Federal Reserve’s preferred inflation measure. This data may provide additional clues about the US central bank’s future expectations regarding interest rates. This information may be crucial in determining the movement of the US dollar in the coming days.
Euro falls after the European Central Bank cuts interest rates
On the other side of the Atlantic, the euro witnessed a slight decline on Friday after the European Central Bank cut interest rates by a quarter of a percentage point. This cut is the fifth in a row since June, reflecting the continued pressure.
The market expects the European Central Bank to continue cutting rates, with analysts predicting up to three more cuts this year. With inflation lower than expected, the European economy is in need of more stimulus. However, some recent economic data, such as German retail sales for December, which fell by 1.6%, suggests that the European economy is facing ongoing economic challenges.
Euro outlook amid economic pressures
The euro is increasingly likely to weaken if economic pressures persist. For example, French consumer prices rose less than expected in January, reaching 1.8% year-on-year, below the ECB’s target. This decline in prices clearly shows that inflation in the eurozone has not fallen enough.
GBP awaits Bank of England decisions
According to analysts, the EUR/USD pair could see another decline if President Trump imposes tariffs on Mexico and Canada. If this happens, the EUR/USD pair is likely to head below 1.030 due to the strength of the US dollar. This shift could increase the risk of tariffs affecting the European economy, leading to further weakness in the euro.
In the UK, markets are awaiting the Bank of England’s upcoming monetary policy meeting. The bank is expected to keep interest rates unchanged at its upcoming meeting. However, concerns about the strength of the British economy make the pound vulnerable to sharp downside moves.
In this context, the pound witnessed a slight decline of 0.1% to reach 1.2418 against the US dollar. Markets are awaiting any signals that the Bank of England may issue regarding future monetary policy, as the bank may take steps to stimulate the economy in light of the ongoing challenges facing the UK after Brexit.
Japanese Yen Declines Despite Jump in Tokyo CPI
In Asian currency markets, the Japanese Yen witnessed a decline despite the release of strong inflation data. The USD/JPY pair rose 0.3% to 154.63, reflecting the general market sentiment.
Recent data showed that the Tokyo consumer price index rose 3.4% year-on-year, its highest level since April 2023. This is a strong indicator of increased private spending, but the yen did not benefit from this data as expected.
Chinese Currencies Amid Weak Trading
In China, the Chinese currency (CNY) saw weak trading due to the Lunar New Year holiday. The USD/CNH pair rose 0.1% to 7.2966, while Chinese currency markets did not see much movement due to the absence of activity due to the holiday. These holiday periods are a factor that contribute to the volatility of Chinese currencies.
