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U.S. Dollar Stabilizes as Global Tariff Uncertainty Looms Ahead of Key Central Bank Decisions

The U.S. dollar traded within narrow ranges against major currencies on Thursday. It struggled to find direction as investors awaited clarity on tariffs from President Donald Trump.

Upcoming Central Bank Decisions to Impact Currencies

Next week, central bank decisions are expected to influence global currencies. The Bank of Japan is likely to raise interest rates following its two-day meeting, concluding on Friday. The U.S. Federal Reserve and European Central Bank (ECB) will announce their rate decisions on Wednesday and Thursday, respectively.

Dollar Index Remains Stable

The dollar index, which measures the U.S. currency against a basket of six major currencies, stayed flat at 108.34. On Monday, the dollar had dropped 1.2%, marking its largest one-day decline since November 2023. This decline came after President Trump’s first day back in office, which included a flurry of executive orders, but no tariff announcements.

Euro Weakens Slightly

The euro decreased by 0.09%, trading at $1.04. Analysts expect the ECB to reduce rates by 0.25% next week.

Tariff Talks with Key Trading Partners

President Trump has floated the idea of imposing 25% tariffs on goods from Canada and Mexico and 10% on Chinese imports, effective February 1. He has also mentioned levying duties on European goods, though he has not provided further details. Trump is scheduled to speak remotely at the World Economic Forum in Davos, Switzerland, at 11 a.m. ET (1600 GMT). This speech will be his first major address to global business and political leaders since returning to power.

Trump’s Approach to China

Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted that Trump’s approach to China has been softer than expected. She added that market sentiment remains fragile and could change quickly if Trump adopts a more aggressive stance.

On Monday, Trump signed a trade memo, ordering federal agencies to review trade issues by April 1. Many market participants are watching this date closely for clues about the future of tariffs.

Dollar Up Against China’s Yuan

The dollar rose by 0.15% against the Chinese yuan in offshore trading, reaching 7.292 yuan. Since Trump’s inauguration, the dollar has weakened by about 0.5% against the yuan. Analysts had initially feared a yuan depreciation due to potential tariffs, but sentiment shifted after China announced a plan to channel billions of yuan from state-owned insurers into the stock market. Additionally, a call between Trump and Chinese President Xi Jinping is scheduled for Friday.

Yen Stable Ahead of Expected Rate Hike

The Japanese yen remained stable at 156.44 per dollar. Markets are pricing in a 95% chance of a 0.25% rate hike from the Bank of Japan on Friday.

Canadian Dollar Weaker

The Canadian dollar slipped to C$1.4407 against the U.S. dollar. This follows a volatile start to the year, driven by concerns over tariffs. The Bank of Canada is expected to cut rates by 0.25% next Wednesday.

Mexican Peso Holds Steady

The Mexican peso was little changed at 20.49 per dollar. The currency has also faced pressure from tariff concerns.

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