The U.S. dollar declined on Wednesday amid uncertainty over President Trump’s tariff plans, while sterling fell on disappointing government borrowing data.
The dollar index, which measures the greenback against a basket of six other currencies, was trading 0.1% lower at 107.755 after a drop of more than 1% at the start of the week.
Dollar loses ground on tariff-related uncertainty
The dollar held lower as traders tried to gauge the full depth of President Donald Trump’s tariff-linked plans, and the potential pain the new administration plans to inflict on major trading partners.
Trump reported late Tuesday that his administration was looking at imposing a 10% tariff on goods imported from China starting Feb. 1, the same day that both Canada and Mexico would face levies of about 15%.
He also noted that Europe will also suffer from the imposition of tariffs on European imports, although he has refrained from enacting these tariffs even though he signed several executive orders after taking a position on Monday.
“Data will play a secondary role this week, as all attention will be on Trump’s first executive orders,” ING analysts indicate, in a note. “By the way, the Fed is in the quiet period ahead of next Wednesday’s meeting. Expect a lot of ‘headline trading’ and noise in the near term, with risks still skewed to a stronger dollar.”
Pound falls after retail sales
In Europe, GBP/USD was down about 0.1% to 1.2349 after data revealed that Britain posted a larger-than-estimated budget deficit in December, due in part to higher interest costs on debt.
Net borrowing in the sector was around 17.8 billion pounds during December, more than 10 billion pounds higher than last year, according to the Office for National Statistics on Wednesday.
Rising yields on British government debt have increased the cost of servicing the country’s debt and could force the new Labour government to cut public spending to meet fiscal rules.
EUR/USD rose to 1.0429, although the single currency remains weaker across the board as the European Central Bank is expected to cut interest rates steadily this year than its main rivals, the Federal Reserve and the Bank of England.
The ECB is seen as cutting rates four times in the next six months, with next week’s reduction expected to be a reality.
“The direction is very clear,” ECB President Christine Lagarde told CNBC in Davos on interest rates. “The pace we will see depends on the data, but a gradual move is certainly something that comes to mind at the moment.”
BoJ meeting approaching
In Asia, USD/JPY was down 0.1% at 155.69 ahead of the Bank of Japan’s two-day monetary policy meeting later this week.
The BOJ is expected to raise interest rates next Friday, and may reiterate its commitment to continue raising rates if the economy maintains its recovery.
USD/CNY traded flat at 7.2715, with China’s currency even weaker after Teump said he is considering imposing 10% tariffs from the first day of February.
