US dollar up; Trump’s mixed tariff messaging stirs uncertainty

The US dollar firmed for a second day on Thursday (Feb 27), but was still close to an 11-week trough as vague pledges from US President Donald Trump to impose tariffs on Europe and further delay levies planned for Canada and Mexico stoked uncertainty.

The euro edged further back from a one-month high of US$1.0529 hit in the previous session, as traders took a wait-and-see approach to Trump floating the idea on Wednesday of a 25 per cent “reciprocal” tariff on European cars and other goods.

Trump also said that steep 25 per cent tariffs on Mexican and Canadian goods could take effect on Apr 2, instead of the previously stated deadline of Mar 4.

But a White House official said levies on Mexican and Canadian goods remained in effect “as of this moment”, pending Trump’s review of both nations’ actions to secure their borders and halt the flow of migrants and the opioid fentanyl into the US.

“It fits pretty well with our predisposition that Trump is over-threatening with tariffs but under-delivering,” said Mohamad Al-Saraf, senior analyst at Danske Bank.

“Sure, the dollar is a bit stronger, but it’s not like the first few weeks after the Trump inauguration where tariff headlines had a much bigger impact than they have now.”

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

The mixed messages from the Trump administration kept currencies largely within recent ranges.

The euro dropped 0.1 per cent to US$1.0479, with investors also awaiting news of any progress on efforts by German conservatives to form a coalition government after their weekend election victory.

The Canadian dollar was steady but near a two-week low against its US counterpart reached the day before, while the Mexican peso was little changed at 20.423 per dollar.

While global trade concerns helped lift the dollar index to 106.6, further away from a more-than-two-month low of 106.12 touched on Monday, it remained down nearly 4 per cent from a more-than-two-year high hit in January, as the shifting tariff messages simultaneously fanned worries about US economic growth and inflation.

A recent string of indicators, including weak US business activity in February, and a sharp drop in consumer confidence, amplified those concerns, causing US Treasury yields to tumble.

While hard economic data has yet to show the decline that sentiment indicators have, risks are growing, Commerzbank economists Bernd Weidensteiner and Christoph Balz wrote in a research note.

“So far, we see no reason to abandon our baseline scenario of continued solid growth; the US economy still appears to have sufficient momentum. However, the real economic data for the coming months should be followed with great attention,” they said.

Money market traders expect the US Federal Reserve will deliver at least two rate cuts this year, with about 58 basis points of easing priced in for 2025, although the next cut is not fully priced until July.

The Australian and New Zealand dollars, both particularly vulnerable to the risks of a global trade war, brushed their lowest levels in two weeks.

The US dollar was last up 0.4 per cent at 149.68 yen, but remained not far off its weakest level against the Japanese currency since early December.

The fall in US Treasury yields has helped to lift the yen, while Japanese yields have also climbed on bets that the Bank of Japan (BOJ) will continue to raise interest rates this year.

Japan’s top currency diplomat, Atsushi Mimura, on Wednesday underscored Tokyo’s view that the yen’s rebound was broadly in line with an improving economy that could justify BOJ hikes.

In cryptocurrencies, Bitcoin rose 2.2 per cent to US$86,320 after slumping to its lowest level since Nov 11 at US$82,156.99 the previous day. REUTERS