The U.S. dollar edged up versus the euro but dropped against the yen on Monday as concerns about U.S. tariffs returned and investors braced for a raft of central bank policy meetings and economic data later this week.
Last week was the dollar’s weakest in more than a year on expectations that tariffs enacted by U.S. President Donald Trump will be lower than previously feared. But concerns have resurfaced as the U.S. and Colombia pulled back from the brink of a trade war.
Monetary policy decisions later this week and inflation data on Friday, according to Reuters, suggest the focus may shift, at least temporarily, from tariff risks to interest rate differentials, some analysts say.
No change in rates from the U.S. Federal Reserve and 25 basis points (bps) cuts from the European Central Bank, the Bank of Canada and Riksbank are priced in, but markets will closely watch any clues on the outlook.
Adarsh Sinha, forex and rate strategist at BofA, said “the gap between the U.S. 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.”
The dollar index , which measures the currency against six others, rose 0.1% to 107.58, still close to the one-month low it touched last week. The index has risen nearly 4% since the U.S. elections in early November.
The prospect of high U.S. tariffs on goods from countries including China, Canada and Mexico, as well as the euro zone, has stoked concerns about a renewed bout of inflation, boosting Treasury yields and the greenback in recent months.
Charu Chanana, chief investment strategist at Saxo, said the Colombia tensions showed it was likely premature to put tariff risks on the backburner.
The Mexican peso , a barometer of tariff worries, dropped around 1% to 20.48 per dollar, while the Canadian dollar was down 0.4% at 1.44.
Trump said last week he may impose duties on products from Canada and Mexico from Feb. 1.
The euro was 0.2% lower at $1.0474, Sterling last fetched $1.2446.
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The benchmark U.S. 10-year yield fell 7 bps to 4.55% in London trade.
U.S. data on Friday showed business activity slowed to a nine-month low in January amid rising price pressures. Separately, U.S. existing home sales increased to a 10-month high in December.
Inflation data will be released from Germany, France and Japan on Friday, while the Fed’s favourite inflation gauge is due in the U.S.
The Japanese yen changed hands at 155.88 per dollar after the Bank of Japan pushed its policy rate to the highest level since the global financial crisis and revised up its inflation forecasts.
BOJ Governor Kazuo Ueda said the central bank would keep raising interest rates as wage and price increases broaden out in the economy, but he offered few clues on the timing and pace of future rate hikes.
Some analysts said that tariffs could also affect BoJ monetary policy.
“The BoJ’s willingness to raise Japan’s policy rate by 25 bps didn’t come as a surprise.” said Thierry Wizman, global forex and rates strategist at Macquarie.
“But coming against a backdrop of President Trump’s recent tariff threats, the BoJ’s hawkish tone might reflect policymakers’ desire to not do anything that potentially would weaken the yen, and thus raise Trump’s ire,” he added.
Bitcoin , the world’s best-known cryptocurrency, eased to a 1-1/2-week low of $97,810.50, but remained close to the record high of $109,071.86 touched last week on hopes Trump will usher in friendlier regulations.
In an executive order on Thursday, Trump created a working group to draft new crypto rules and explore a crypto stockpile, while the Securities and Exchange Commission dropped accounting guidance that the industry said had stymied crypto adoption.
Analysts said the positive developments in the crypto ecosystem were priced in weeks ago.
