Photo by Pixabay
On Monday, the dollar remained close to a five-month low against the euro, as concerns grew among investors regarding the economic repercussions of US President Donald Trump’s protectionist trade policies. The euro, which has gained momentum in recent sessions due to optimism surrounding a potential fiscal agreement in Germany, rose by 0.2 percent to $1.0906. This common currency was just below the $1.0947 mark it reached last week, the highest level since October 11.
In recent months, currency markets have experienced a shift as traders reassess their earlier expectations that Trump’s economic strategies would bolster the dollar while weakening other currencies. This reevaluation has led to a 6 percent decline in the dollar’s value against the euro since mid-January.
Kyle Chapman, an FX markets analyst at Ballinger Group in London, remarked, “I believe the market misjudged the situation.” He noted that there was an initial focus on tax cuts and deregulation as catalysts for growth, which simultaneously fostered a risk-averse sentiment. “The emphasis has shifted significantly towards protectionism, leaving many confused,” Chapman added.
Since assuming office in January, Trump’s statements regarding the imposition and subsequent suspension of tariffs on various trading partners have unsettled the markets. While Treasury Secretary Scott Bessent, in a Sunday interview, dismissed the likelihood of a financial crisis, he cautioned that there are “no guarantees” against a potential recession in the United States.
The dollar received minimal support from a report released by the Commerce Department on Monday, which indicated a moderate rebound in retail sales for February, following a revised decline of 1.2 percent in January. This week is filled with central bank meetings, including those of the Federal Reserve, the Bank of Japan, and the Bank of England, all of which are anticipated to maintain their current policies as they navigate the prevailing economic uncertainty.
The euro has appreciated following an agreement among German political parties on Friday regarding a fiscal plan that could enhance defense spending and stimulate growth in Europe’s largest economy. Analysts at Societe Generale noted on Monday that they have adjusted their currency forecasts to account for Germany’s proposed fiscal changes, the relative fragility of the US economy, and Japan’s exit from deflation.
They project the euro to reach $1.13 by the end of the year, representing an increase of nearly 4 percent from current levels, while forecasting the yen to be valued at 139 per dollar, an increase of approximately 7 percent. On Monday, the dollar rose by 0.1 percent against the yen, reaching 148.80 yen, remaining close to the five-month low of 146.52 recorded last week.
The Bank of Japan is expected to maintain its interest rates during its meeting on Wednesday; however, the conditions for a potential rate increase are becoming more favorable, as major Japanese companies are offering significant pay raises in wage negotiations with unions for the third consecutive year. In a parliamentary address last week, BOJ Governor Kazuo Ueda expressed his expectation that wage increases would lead to a rise in consumption, although he also conveyed significant concern regarding uncertainties related to international economic developments.
In offshore trading, the Chinese yuan approached its highest level in four months, trading at 7.2332 per dollar. It had previously strengthened to 7.2158 per dollar last Wednesday, marking its first increase since November 13.
On Sunday, China’s State Council unveiled a “special action plan” aimed at enhancing domestic consumption, which includes initiatives to raise residents’ income and implement a childcare subsidy program.
During the trading session, various economic indicators from China revealed that the economy began the year on a more solid foundation, with retail sales gaining momentum in the initial two months.
In the realm of cryptocurrencies, bitcoin, the largest digital currency by market capitalization, remained relatively stable, priced at $83,205.
