SINGAPORE: The dollar drew safe-haven support on Friday ahead of US President Donald Trump’s impending tariffs, though was still headed for a monthly loss as investors weighed those threats against a darkening US growth outlook.
The yen was meanwhile set to end the month with a gain of more than 3.6%, its best since last July, on heightened bets of more Bank of Japan (BOJ) rate hikes this year.
The Japanese currency was last 0.04% higher at 149.65 per dollar, trimming some of its earlier gains after data on Friday showed core inflation in Tokyo slowed in February.
“The narrative from Japan in terms of economic activity is still very encouraging,” said Rodrigo Catril, senior currency strategist at National Australia Bank (NAB).
“The inflation dynamics are screaming that normalisation should be happening sooner rather than later, but the Bank of Japan will remain cautious and move very slowly because of that uncertain environment we are currently in.”
In the broader market, the risk-sensitive Australian dollar sank to its lowest in more than three-weeks at $0.62305, having fallen more than 1% in the previous session. For the week, the Aussie was set to lose nearly 2%, though it fared better on a monthly basis with a slight 0.3% gain.
The euro struggled at a two-week low of $1.0389 and was similarly set for a 0.6% weekly fall, which would put its monthly gain at 0.36%.
The risk-off moves in currencies came after Trump on Thursday said his proposed 25% tariffs on Mexican and Canadian goods will take effect on March 4 along with an extra 10% duty on Chinese imports, defying expectations of those in the market who were hoping for a further delay in the implementation of the levies.
The dollar briefly rose above the 7.30 level against the yuan in the offshore market, and was last at 7.2966.
The Canadian dollar was a touch stronger at C$1.4431, though that was after it had fallen 0.7% in the previous session.
The loonie looked set to end the week with a roughly 1.5% decline.
All of that left the greenback hovering near a one-week top against a basket of currencies.
The dollar index last stood at 107.24, having jumped nearly 0.9% on Thursday. Still, the index was on track for a monthly loss of 1.1%, its worst since August, as the dollar continues to face some downward pressure amid worries over the health of the world’s largest economy.
A raft of weaker-than-expected economic data has led to traders ramping up bets of more Federal Reserve rate cuts this year, which has in turn sent US Treasury yields lower and been a drag on the dollar.
“For now, it’s the growth story that is dominating, pushing yields lower, whilst at the same time, we’re starting to see a little bit of an increase in volatility in markets in general and that risk aversion as well,” said NAB’s Catril.
“There’s been that element of the calm before the storm … the low levels of volatility to us are a reflection of uncertainty and delayed decisions rather than the market being comfortable with what Trump is doing.”
Elsewhere, sterling edged up 0.04% to $1.2607 and was set to end the month with a gain of 1.7%, its best performance in five months. The pound has partly been supported by expectations for relatively fewer rate cuts from the Bank of England than some other central banks, namely the European Central Bank.
The New Zealand dollar eased 0.12% to $0.5625 and was on track to lose more than 2% for the week, its worst weekly performance in five months.
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