By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was established on Monday, as traders pondered the fallout from U.S. President Donald Trump's tariff plans at the start of the week with the Federal Reserve widely expected to keep interest rates steady.
The dollar posted its weakest week since November 2023 last week on tariff concerns deflected from the Trump administration, but those concerns resurfaced after he said he would impose sweeping measures on Colombia.
The retaliatory moves, including tariffs and sanctions, come after the South American country removed two US military planes from where migrants were being deported as part of the new US administration's migration crackdown.
That led the Mexican peso, a measure of tariff concerns, to slide 0.8% to 20.426 per dollar in early trade. The Canadian dollar was slightly weaker at $1.43715.
The euro was 0.14% lower at $1.0474 ahead of the European Central Bank's policy meeting this week where the central bank is expected to reduce borrowing costs. The British pound brought another $1.24615.
That left that, which measures the US currency against six units, at 107.6, still close to last week's single-digit low.
Investor focus this week will be on central banks and how policymakers are likely to react after Trump said he wants the Federal Reserve to cut interest rates.
The Fed is expected to keep rates unchanged when it concludes its two-day meeting on Wednesday, although investors will watch for any evidence that there is a decline in rates in March if inflation continues to fall further than the US central bank's annual target of 2%. %.
Data on Friday showed that US business activity slowed to a ninth-month low in January amid mounting price pressures, while US existing home sales rose to a 10-month high in December.
“Optimism around Trump's growth-friendly agenda has soared in America's First Nation, inflationary pressures have intensified to the highest level in four months, and companies are furloughing employees at the fastest pace since 2022,” said Kyle Chapman, markets analyst at Ballinger.
“This picture suggests a labor market that is heating up, strongly supporting an extended pause at the Fed.”
In other currencies, the Australian and New Zealand dollars were slightly lower but remained closer to the highs touched last week. Australian markets are closed for today.
The Japanese yen strengthened nearly 0.4% to 155.41 per dollar in early trading after the Bank of Japan raised interest rates on Friday to their highest levels since the 2008 global financial crisis and lowered inflation expectations.
BOJ Governor Kazuo Ueda said the central bank would continue to raise interest rates while expanding interest rates and rates, but he provided little evidence on the timing and speed of future rate hikes.
Mark Dowding, chief investment officer at RBC Bluebay Asset Management, said renewed interest in the Japan story could provide a catalyst for the yen to appreciate in the coming weeks.
“The Japanese currency remains undervalued in most valuation models, and as the interest rate differential narrows, we believe this will help the yen perform better in 2025.”
