Dollar Drifts near Multi-Week Low

The U.S. dollar remained near a three-week low on Friday as fears over immediate tariff impositions eased, providing some relief to financial markets. Investors found solace in the fact that while U.S. President Donald Trump directed his economic team to formulate reciprocal tariff plans against countries taxing U.S. imports, he refrained from announcing immediate measures. Instead, his administration is expected to conduct weeks or even months of investigation before making final decisions. This delay in tariff imposition has opened the possibility of negotiations, reassuring markets that drastic trade policies may not take effect immediately.

The dollar, which had strengthened significantly last year in anticipation of Trump’s tariffs, has faced recent pressure as these trade measures have been repeatedly delayed or scaled down. Since taking office on January 20, Trump has introduced tariffs on Mexico, Canada, and China, but their implementation has either been postponed or moderated, limiting their impact on inflation and dampening dollar strength. The euro and the pound, both of which were previously expected to bear the brunt of U.S. tariffs, have risen by 2% and 3%, respectively, since Trump’s inauguration. Investors remain uncertain about how aggressively the administration will push forward with its trade policy, keeping the dollar under pressure.

The euro reached its highest level in over two weeks at $1.04823, supported by renewed optimism over potential peace talks between Ukraine and Russia. Trump’s recent phone discussions with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy indicated a willingness to negotiate, and his statement that Ukraine would have a role in future peace negotiations further bolstered investor sentiment. Meanwhile, the British pound climbed to $1.2591, its strongest level since early January, as economic data from the UK helped ease concerns about economic resilience.

Inflationary concerns also played a role in the dollar’s movement. Thursday’s U.S. producer price index (PPI) showed a decline in energy costs, alleviating some inflationary pressures after a stronger-than-expected consumer price index (CPI) report earlier in the week. The CPI report had caused investors to scale back expectations for multiple rate cuts by the Federal Reserve, but the softer PPI data helped repair confidence. Futures traders are now pricing in around 33 basis points of rate cuts for 2025, up slightly from 29 basis points before the PPI report but still below the 37 basis points anticipated before the CPI data was released.

Uncertainty remains over how Trump’s economic policies will impact the U.S. economy, particularly regarding tariffs and their potential to disrupt global trade. The Federal Reserve is expected to maintain a cautious stance, balancing inflation concerns with the broader economic outlook. Treasury yields declined following the PPI report, benefiting the Japanese yen, which recovered most of its losses and remained steady at 152.775. The yen has strengthened nearly 3% in 2025 as investors increasingly bet on another rate hike by the Bank of Japan.

As markets await further developments, all eyes are on upcoming U.S. retail sales data, which could provide additional insights into economic momentum. While the dollar remains under pressure, the delayed tariff timeline and the potential for diplomatic negotiations have helped stabilize market sentiment. However, uncertainty over trade policies, inflation trends, and the Federal Reserve’s stance on interest rates will continue to drive currency movements in the coming weeks.