US Dollar Rises Amid Growth Concerns and Trade War Fears

The US dollar strengthened on Tuesday, recovering from losses in the previous session, as global growth concerns resurfaced and heightened fears of trade wars began to weigh on market sentiment.

At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six major currencies, rose by 0.5%, reaching 107.725, though it remains marginally lower for the week.

Growth Concerns Bolster the Dollar’s Safe-Haven Appeal

The US dollar’s rebound was largely driven by renewed concerns over global growth. These fears were stoked by US President Donald Trump’s continued push for higher universal tariffs, which he proposed could start at 2.5% and rise up to 20%.

Trump’s comments reignited concerns over the potential for a global trade war, intensifying the dollar’s appeal as a safe-haven asset. Further reports indicated that Treasury Secretary Scott Bessent supports a gradual increase in tariffs, targeting key products such as steel, copper, and semiconductors.

Tech Selloff and Fed Meeting Weigh on Markets

The dollar had suffered losses on Monday after a selloff in technology stocks, triggered by market reactions to the launch of a new free open-source AI model by the Chinese startup DeepSeek. The fallout from this development raised questions about the sustainability of the tech sector’s growth, contributing to market volatility.

The Federal Reserve is set to conclude its two-day policy meeting on Wednesday, with no changes to interest rates expected. However, the Fed’s commentary on inflation and future monetary policy will be closely watched, especially in light of the growing concerns surrounding global trade tensions.

ECB and Bank of England Policy Moves

In Europe, the euro struggled against the dollar, with EUR/USD falling 0.6% to 1.0430, despite an improvement in French consumer confidence in January. The European Central Bank’s meeting on Thursday is drawing attention, as the bank is widely anticipated to cut interest rates again, having already made four cuts in 2024.

The British pound also weakened, with GBP/USD trading 0.5% lower at 1.2437, ahead of the Bank of England’s meeting in early February, where further policy decisions may be made.

Yen on a Rollercoaster Ride

In Asia, the Japanese yen saw significant fluctuations, with USD/JPY rising 0.8% to 155.70. Market participants are awaiting inflation data from Tokyo later this week, which could influence the yen’s direction in the near term.