Dollar Holds Steady Amid Tariff Speculations and Rate Decision Anticipation

The U.S. dollar remained steady against major currencies on Thursday, continuing its muted performance over the past two days as markets awaited clarity on tariff policies from U.S. President Donald Trump.

Investors are also bracing for central bank policy decisions next week, with the Bank of Japan expected to raise interest rates by 0.25% at the conclusion of its two-day meeting on Friday. The Federal Reserve and European Central Bank are set to announce rate decisions on Wednesday and Thursday, respectively.

The dollar index, which tracks the greenback against six major currencies, held at 108.25 after modest gains earlier this week. On Monday, it plunged 1.2%, marking its steepest drop since November 2023, as Trump refrained from immediate tariff actions on his first day in office.

This week, Trump hinted at imposing 25% tariffs on imports from Canada and Mexico and 10% on Chinese goods starting February 1. He also mentioned duties on European imports but provided no specifics. Analysts remain cautious, with Carol Kong of Commonwealth Bank of Australia noting that "risk sentiment remains fragile" and could deteriorate if Trump adopts a more aggressive stance on tariffs.

The Chinese yuan traded at 7.2812 per dollar offshore, while Japan's yen rose 0.1% to 156.40, reflecting a 95% market expectation of a rate hike. The euro was unchanged at $1.0411, as the ECB is expected to cut rates next week. Meanwhile, the Canadian dollar stayed at C$1.4386, and the Mexican peso held steady at 20.47, with the Bank of Canada likely to reduce rates by 0.25% on Wednesday.

Markets are navigating a delicate balance of geopolitical uncertainties and central bank actions, keeping currency moves constrained for now.