By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was lower on Monday as traders weighed the fallout from U.S. President Donald Trump’s tariff plans at the start of a week in which the Federal Reserve is expected to keep interest rates steady.
The dollar hit its weakest week since November 2023 last week on fears of tariffs from the Trump administration, but those worries resurfaced after he said he would impose measures on Colombia.
The retaliatory moves, including tariffs and sanctions, come after the South American country turned away two US military aircraft and migrants were deported as part of the new US administration’s immigration crackdown.
That sent the Mexican peso, a barometer of tariff worries, sliding 0.8% to 20.426 per dollar in early trade. The Canadian dollar was slightly weaker at $1.43715.
The euro was 0.14% lower at $1.0474 ahead of this week’s European Central Bank meeting, where the central bank is expected to cut borrowing costs. Sterling last touched $1.24615.
That left, which measures the US currency by six units, at 107.6, still close to the one-month low touched last week.
Investors’ focus this week will be on central banks and how policymakers are likely to react after Trump said he wants the Federal Reserve to cut interest rates.
The Fed is expected to keep rates unchanged when it wraps up its two-day meeting on Wednesday, although investors will be watching for any signs that a rate cut could come in March if inflation continues to ease closer to the Bank of America’s 2% annual target.
Data on Friday showed that US business activity slowed to a nine-month low in January amid mounting price pressures, while separately US home sales rose to a 10-month high in December.
“Optimism has risen about Trump’s first America-friendly growth agenda, inflationary pressures have intensified to a four-month high and companies are hiring at the fastest pace since 2022,” said Kyle Chapman, FX analyst at the Ballinger Group.
“That picture suggests a rewarming labor market and strongly supports an extended Fed pause.”
In other currencies, the Australian and New Zealand dollars were slightly lower but remained close to their one-month highs touched last week. Australian markets are closed for the day.
The Japanese yen rose nearly 0.4% to 155.41 per dollar in early trading after the Bank of Japan on Friday raised interest rates to the highest since the 2008 global financial crisis and revised its inflation forecasts.
BOJ Governor Kazuo Ueda said the central bank would continue to raise interest rates as wages and prices rise, but offered few clues about the timing and pace of future rate hikes.
Mark Dowding, chief investment officer at RBC Bluebay Asset Management, said renewed attention to the Japan story could provide a catalyst for the yen to appreciate in the coming weeks.
“The Japanese currency remains extremely undervalued on most valuation models and, as interest rate differentials narrow, we think this will help the yen outperform in 2025.”
