Apr 15, 2025
The dollar hovers near its lows due to uncertainty over tariffs, while the euro remains strong ahead of the ECB.
The U.S. dollar experienced a slight decline on Tuesday, staying close to a three-year low due to ongoing turmoil regarding the Trump administration's trade policies, which are impacting the U.S. economy.
At 04:45 ET (08:45 GMT), the Dollar Index, reflecting the dollar's value against six other currencies, dipped slightly to 99.395, remaining near the low it reached last week.
The index has fallen over 4% this month, marking its largest monthly decrease since November 2022.
Trade uncertainty has heavily affected the dollar as the unstable nature of the Trump administration's trade policies, particularly fluctuating U.S. tariffs, has shaken investor confidence.
Analysts at ING noted that "markets retain a substantial risk premium attached to U.S. assets, including the dollar,” estimating this risk premium to be between 2% and 5% across various G10 currencies. However, they cautioned that recent instability in correlations and high FX volatility means these figures may not be entirely reliable.
On Monday, President Trump proposed potential exemptions from the 25% tariffs on foreign vehicle imports, particularly for Mexico and Canada. Previously, the administration had granted exclusions for specific electronics like smartphones and laptops from China, helping to lessen some concerns about escalating trade tensions.
Despite this, ING observed that the options market indicates a continued bearish sentiment toward the dollar, with Monday's activity suggesting that investors are inclined to sell USD during rallies. They added that even if the worst of U.S. market dysfunction has passed, a decline in U.S. economic data is likely forthcoming, and the adverse effects of chaotic trade policies won't be resolved quickly.
In Europe, EUR/USD rose by 0.1% to 1.1361, just under last week’s three-year peak of 1.1474, benefitting from the trade chaos associated with the Trump administration. ING noted, “A return to 1.15 may be the next move for EUR/USD as the euro remains a preferred channel for safe-haven flight from USD.” However, with the European Central Bank meeting on Thursday, there are expectations for a 25-basis-point rate cut, which would lower the ECB’s deposit rate to 2.25%. Seema Shah, Principal Asset Management's chief global strategist, commented on the overall downward revision of growth forecasts and the euro's strength dampening inflation, suggesting that the ECB may focus on growth in the short term.
GBP/USD rose 0.4% to 1.3230, following stable unemployment figures and elevated wage growth in the UK labor market. The jobless rate remained at 4.4% in February, with the yearly regular pay growth at 5.9%, slightly up from the previous month. The Bank of England held borrowing costs steady in March but is widely anticipated to approve a quarter-point rate cut at its May meeting due to potential economic impacts from the new U.S. tariffs.
In Asia, USD/JPY fell slightly to 142.92, as the Japanese yen remained close to its strongest level in six months amid high demand for safe havens. USD/CNY edged up by 0.1% to 7.3152, with ongoing trade tensions between China and the U.S. Meanwhile, AUD/USD increased by 0.6% to 0.6354 after the Reserve Bank of Australia decided to maintain the cash rate in April while evaluating global uncertainties caused by tariffs.
At 04:45 ET (08:45 GMT), the Dollar Index, reflecting the dollar's value against six other currencies, dipped slightly to 99.395, remaining near the low it reached last week.
The index has fallen over 4% this month, marking its largest monthly decrease since November 2022.
Trade uncertainty has heavily affected the dollar as the unstable nature of the Trump administration's trade policies, particularly fluctuating U.S. tariffs, has shaken investor confidence.
Analysts at ING noted that "markets retain a substantial risk premium attached to U.S. assets, including the dollar,” estimating this risk premium to be between 2% and 5% across various G10 currencies. However, they cautioned that recent instability in correlations and high FX volatility means these figures may not be entirely reliable.
On Monday, President Trump proposed potential exemptions from the 25% tariffs on foreign vehicle imports, particularly for Mexico and Canada. Previously, the administration had granted exclusions for specific electronics like smartphones and laptops from China, helping to lessen some concerns about escalating trade tensions.
Despite this, ING observed that the options market indicates a continued bearish sentiment toward the dollar, with Monday's activity suggesting that investors are inclined to sell USD during rallies. They added that even if the worst of U.S. market dysfunction has passed, a decline in U.S. economic data is likely forthcoming, and the adverse effects of chaotic trade policies won't be resolved quickly.
In Europe, EUR/USD rose by 0.1% to 1.1361, just under last week’s three-year peak of 1.1474, benefitting from the trade chaos associated with the Trump administration. ING noted, “A return to 1.15 may be the next move for EUR/USD as the euro remains a preferred channel for safe-haven flight from USD.” However, with the European Central Bank meeting on Thursday, there are expectations for a 25-basis-point rate cut, which would lower the ECB’s deposit rate to 2.25%. Seema Shah, Principal Asset Management's chief global strategist, commented on the overall downward revision of growth forecasts and the euro's strength dampening inflation, suggesting that the ECB may focus on growth in the short term.
GBP/USD rose 0.4% to 1.3230, following stable unemployment figures and elevated wage growth in the UK labor market. The jobless rate remained at 4.4% in February, with the yearly regular pay growth at 5.9%, slightly up from the previous month. The Bank of England held borrowing costs steady in March but is widely anticipated to approve a quarter-point rate cut at its May meeting due to potential economic impacts from the new U.S. tariffs.
In Asia, USD/JPY fell slightly to 142.92, as the Japanese yen remained close to its strongest level in six months amid high demand for safe havens. USD/CNY edged up by 0.1% to 7.3152, with ongoing trade tensions between China and the U.S. Meanwhile, AUD/USD increased by 0.6% to 0.6354 after the Reserve Bank of Australia decided to maintain the cash rate in April while evaluating global uncertainties caused by tariffs.