Tokyo March 18 2025: The U.S. dollar wallowed near a five-month trough against the euro and other major peers on Tuesday as investors grappled with the potential economic impact of growing global trade tensions.
Fears that U.S. President Donald Trump’s aggressive tariff policies could trigger a broader economic slowdown has undermined the greenback amid a string of soggy sentiment surveys.
The dollar index , which measures the currency against six key rivals, has dropped around 6% from the more than two-year peak of 110.17 hit in mid-January. It was last at 103.44, struggling to make a decisive move away from a five-month low of 103.21 touched last Tuesday.
The U.S. currency hardly got much support from retail sales data on Monday that showed a modest rebound in February after a revised 1.2% decline in January.
The euro hovered around $1.0919 ahead of an expected vote on Germany’s massive stimulus package, not far off its highest level since October 11 at $1.0947 touched last week.
Germany’s constitutional court on Monday threw out new challenges by opposition parties against a plan by the prospective coalition government, paving the way for parliament to convene on Tuesday to consider the matter.
The package includes a 500 billion euro ($544 billion) fund for infrastructure and sweeping changes to borrowing rules to bolster defence and revive growth in Europe’s largest economy.
On the policy front, the U.S. Federal Reserve, Bank of Japan, and Bank of England are expected to stand pat on rates at their meetings this week, keeping markets focussed on any forward guidance from officials.
The Fed will also publish new economic projections, which will provide the most tangible evidence yet of how U.S. central bankers view the likely impact of the Trump administration’s policies on the economy.
“In aggregate, we see the skew as dovish,” Citi FX strategists wrote in a research note.
“If faced with lower growth/employment and higher inflation, we suspect the Fed will err on the side of caution and towards the growth/employment picture,” they said.
Markets are hedging their bets, currently pricing in about 60 basis points of Fed cuts, a little over two reductions, for the rest of the year.
In Asia, while the BOJ is widely expected to raise interest rates later in the year, the yen pulled back from last Tuesday’s peak of 146.545 per dollar, its strongest since October 4.
BOJ policymakers start their two-day meeting on Tuesday and are expected to discuss just how much of a risk the escalating U.S. trade war poses to Japan’s economy, which will be key to the timing of its next rate hike.
The dollar was up 0.07% at 149.3 yen after earlier touching a little less than a two-week high of 149.46.
