The Dollar saw a slight increase against the Euro on Monday but weakened against the Yen, as concerns over US tariffs resurfaced and investors prepared for a busy week of central bank policy meetings and economic data.
Last week marked the Dollar’s weakest performance in over a year, as expectations grew that the tariffs imposed by US President Donald Trump would be less severe than initially feared. However, concerns reignited after the US and Colombia stepped back from the edge of a trade war.
Analysts suggest that with monetary policy decisions later this week and inflation data on Friday, the focus could shift, at least temporarily, from tariff risks to interest rate differentials, Reuters news agency reports.
Markets are pricing in no change in rates from the Federal Reserve, and 25 basis point (bps) cuts from the European Central Bank, Bank of Canada, and Riksbank, but investors will be closely watching for any indications on the future outlook.
“The gap between the US Dollar index, holding just under 108, and the level implied by rate differentials, closer to 106, has remained steady in the days following the (Trump) Inauguration,” said forex and rate strategist at BofA, Adarsh Sinha.”
The Dollar index, which tracks the currency against six others, increased by 0.1% to 107.58, still near the one-month low it hit last week. The index has climbed nearly 4% since the US elections in November.
Concerns over the potential for high US tariffs on goods from countries such as China, Canada, Mexico, and the eurozone have sparked fears of renewed inflation, driving up Treasury yields and boosting the greenback in recent months.
Elsewhere, the Euro was down by 0.2% at $1.0474 at the time of writing, while Sterling last traded at $1.2446.
The benchmark US 10-year yield dropped by 7 basis points to 4.55% during London trade.
In Japan, the Yen traded at 155.88 per Dollar after the Bank of Japan raised its policy rate to the highest level since the global financial crisis and revised its inflation forecasts upward.
Bank of Japan Governor Kazuo Ueda stated that the central bank will continue to raise interest rates as wage and price increases spread across the economy, but he provided few insights into the timing and pace of future rate hikes.