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The U.S. dollar showed mixed performance on Monday as tariff concerns resurfaced and investors braced for a busy week of central bank decisions and key economic data releases.
Dollar Performance
- The Dollar Index (DXY) rose 0.1% to 107.58, rebounding from a one-month low but remaining close to last week’s dip, which marked its weakest performance in over a year. The index has gained nearly 4% since the U.S. elections in November.
- EUR/USD: The euro fell 0.2% to $1.0474.
- GBP/USD: The British pound traded at $1.2446.
- USD/JPY: The dollar slipped against the yen, with the Japanese currency strengthening to 155.88 per dollar.
The mixed performance reflects renewed tariff concerns and shifting focus toward interest rate differentials, as several major central banks are set to announce policy decisions this week.
Tariff Worries Resurface
Concerns over U.S. trade policies reemerged as the U.S. and Colombia narrowly avoided a trade war. President Trump hinted at potential tariffs on goods from Canada, Mexico, and the eurozone, stoking inflation fears.
- The Mexican peso dropped 1% to 20.48 per dollar.
- The Canadian dollar fell 0.4% to 1.44 against the greenback, reflecting market unease over Trump’s tariff threats, which could begin as early as February 1.
Central Bank Decisions in Focus
Market participants are shifting their attention to this week’s central bank meetings:
- Federal Reserve: Expected to hold rates steady, with markets closely monitoring any forward guidance on monetary policy.
- European Central Bank, Bank of Canada, and Riksbank: Markets anticipate 25 basis point rate cuts from each, with a focus on the ECB’s tone regarding inflation risks.
U.S. 10-Year Treasury Yield: Declined by 7 basis points to 4.55%, as bond markets remained cautious ahead of these key decisions.
Economic Data to Watch
- Inflation Data: Scheduled from Germany, France, and Japan on Friday.
- U.S. Personal Consumption Expenditures (PCE) Index: The Fed’s preferred inflation gauge, due later this week, will provide further clarity on inflationary trends.
- Business Activity: U.S. data last week revealed a slowdown to a nine-month low in January, while December’s existing home sales hit a 10-month high.
Japanese Yen Strengthens
The yen strengthened against the dollar after the Bank of Japan (BoJ) raised its policy rate to the highest level since the global financial crisis and revised its inflation forecasts upward.
BoJ Governor Kazuo Ueda emphasized that further rate hikes would depend on the sustainability of wage and price increases but refrained from giving specific guidance on the pace of future tightening.
Cryptocurrency Update
- Bitcoin: Fell to a 1.5-week low of $97,810.50, retreating from last week’s record high of $109,071.86.
- Trump and Crypto: Optimism surrounding crypto regulations spurred by Trump’s executive order last week has faded. The order created a working group to draft new crypto rules and explore a national crypto stockpile.
Analysts noted that recent positive developments in the crypto space, including eased accounting guidance by the SEC, were likely already priced in by the market.
Outlook
The dollar’s trajectory this week will likely be dictated by central bank signals, inflation data, and ongoing tariff developments. While inflation concerns continue to underpin the greenback’s recent strength, geopolitical and economic uncertainties could drive further volatility across currency markets.
