Dollar Steady as Markets Weigh Tariff Uncertainty

The U.S. dollar rose slightly on Wednesday as markets remained uncertain about President Donald Trump's tariff plans. Trump hinted at a 10% tariff on Chinese imports starting Feb. 1, alongside potential 25% levies on goods from Mexico and Canada, as well as duties on European imports, but specifics remain unclear.

Following his inauguration, the dollar slid 1.2% against a basket of major currencies but stabilized Tuesday after U.S. officials suggested tariffs would be implemented cautiously. The dollar index held steady at 108.14, with the dollar gaining 0.23% to 155.87 yen. Meanwhile, the euro dipped 0.17% to $1.0410, and sterling fell 0.13% to $1.2343.

Analyst Tony Sycamore noted Trump's measured approach might mitigate inflation risks and potential Federal Reserve rate hikes. Markets currently anticipate a quarter-point Fed rate cut by July, with another reduction by year-end seen as a possibility.

The Canadian dollar slipped 0.1% to C$1.4337, affected by a recent inflation slowdown. The Mexican peso weakened 0.15% to 20.6430 per dollar, while China’s yuan eased 0.24% to 7.2865 in offshore trading after reaching a one-month high on Tuesday.

RBC Capital Markets' Alvin Tan remarked that a 10% tariff on Chinese imports is far below Trump’s campaign rhetoric, suggesting a strategy geared toward negotiations rather than aggressive protectionism, which could weigh on the dollar.

The New Zealand dollar dropped 0.42% to $0.5655 as fourth-quarter inflation stayed within the Reserve Bank’s target range. Markets expect a potential rate cut in February. The Australian dollar fell 0.24% to $0.6258, with rate normalization and easing inflation undermining both currencies.

Analysts believe cautious trade policies and inflation dynamics could influence further dollar movements.