The dollar strengthened on Monday as traders questioned the ramifications of U.S. President Donald Trump’s tariff plans at the start of a week when the Federal Reserve is expected to hold interest rates in place.
Last week, the dollar saw its weakest week since November 2023 as fears of tariffs from the Trump administration eased, but those fears resurfaced after he said that he would impose radical measures on Colombia.
The retaliatory measures, including tariffs and sanctions, come after the South American country turned away two US military planes carrying migrants being deported as part of the new US administration’s crackdown on immigration matters.
The Mexican peso, a barometer of concerns about customs duties, lost 0.8% to 20.426 per dollar in early trade. The Canadian dollar was a little weaker at $1.43715.
The euro was down 0.14% at $1.0474 ahead of the European Central Bank meeting this week, at which the central bank is expected to cut borrowing costs. Sterling last hit $1.24615.
The Dollar Index, which measures the U.S. currency against six units, remained at 107.6, still near the lowest level reached in a month last week.
This week, investors will focus on central banks and how policymakers are likely to respond after Mr. Trump said he wanted the Federal Reserve to cut interest rates.
The Fed is expected to keep rates unchanged when it concludes its two-day meeting on Wednesday, but investors will be watching for any hints that a rate cut could come in March if inflation continues to move closer to target annual rate of 2% from the American central bank.
Data on Friday showed that U.S. business activity slowed to a nine-month low in January amid growing price pressures, while separately U.S. existing home sales rose to their highest level. high level for ten months in December.
-“Optimism has surged over Trump’s pro-growth America First agenda, inflation pressures have intensified to a four-month high, and businesses are hiring workers at the fastest pace ever. fast since 2022,” said Kyle Chapman, foreign exchange analyst at Ballinger Group.
“This picture suggests a warming labor market, and strongly supports an extended Fed pause.”
In other currencies, the Australian and New Zealand dollars fell slightly but remained near one-month highs reached last week. Australian markets are closed for the day.
The Japanese yen strengthened almost 0.4% to 155.41 per dollar in early trade after the Bank of Japan raised interest rates on Friday to their highest level since the global financial crisis. 2008 and revised its inflation forecasts upwards.
BOJ Governor Kazuo Ueda said the central bank would continue to raise interest rates as wage and price increases become more widespread, but he offered few clues on the time and pace future rate increases.
Mark Dowding, chief investment officer at RBC BlueBay Asset Management, said the return of focus on Japan could provide a catalyst for the yen to appreciate in the coming weeks.
“The Japanese currency remains extremely undervalued in most valuation models, and as interest rate differentials narrow, we believe this will help the yen perform better in 2025.”
