Dollar strong as Trump imposes new tariff rates; yen slide spurs govt warning

CNA

4 days ago

TOKYO :The dollar headed for its best week in almost three years against its major peers, maintaining momentum on Friday after U.S. President Donald Trump imposed new tariff rates on dozens of trade partners.
The dollar also gained on non-tariff catalysts, with the yen touching a four-month low, extending a steep decline from Thursday after the Bank of Japan signalled it was in no hurry to resume interest rate hikes.
That prompted Japanese Finance Minister Katsunobu Kato to say on Friday that officials are "alarmed" by currency moves. The yen last changed hands at 150.725 per dollar after earlier dipping to 150.915 per dollar, its weakest since March 28.
The U.S. dollar index - which measures the currency against a basket of six major peers including the euro, yen, Swiss franc and Canada's dollar - is on course to rise 2.5 per cent this week, its best weekly performance since a 3.1 per cent rally in September of 2022.
On Friday, it rose 0.1 per cent to 100.14, the highest since May 29.
Some countries fared much worse than others in tariff rates, hitting their currencies.
Canada received a 35 per cent levy instead of an earlier threatened 25 per cent, pushing the loonie down 0.12 per cent to C$1.3872, its lowest since May 22 versus its U.S. peer.
The Swiss franc eased as much as 0.26 per cent to 0.8120 per dollar after Trump set a 39 per cent duty on Swiss imports, up from the 31 per cent he previously mooted.
Among Asian currencies, the Philippine peso slumped to its weakest level in six months, while Taiwan's dollar hit its lowest since early June. South Korea, which got its trade deal late Wednesday, also saw the won swept up in the declines, with the currency falling to levels last seen in mid-May.
The euro remained pinned near an almost two-month low around $1.1412, as it continues to be weighed down by what markets see as a lopsided trade agreement with Washington. That wasn't far from Wednesday's low of $1.1401, a level not seen since June 10.
"In the short-term, you can make the case for more dollar strength," said Mike Houlahan, director at Electus Financial in Auckland. "The lion's share of the tariff news has washed through."
"The big move of the week has really been the euro getting rerated downwards," he said. "The net result would be the EU-U.S. trade deal is a further headwind for the euro."
The EU's framework trade agreement with the U.S., struck on Sunday, was quickly criticized by French leaders and the German head of the European Parliament's trade committee as being unfair for Europe.
PAYROLL DATA TO COME
The U.S. dollar stayed strong even though Trump continued his attacks on Federal Reserve Chair Jerome Powell overnight, calling him a "terrible" Fed Chair and calling his own decision to appoint Powell to the position a "mistake".
Trump's repeated threats to fire Powell and calls for the Fed to drastically cut rates have put the central bank's independence in question, hurting the dollar in recent months.
The Fed shrugged off that pressure on Wednesday by holding policy steady, citing "somewhat elevated" inflation and a "solid" labour market.
A crucial economic test comes in the form of monthly payrolls data later in the day, with economists forecasting that employment growth slowed to 110,000 new jobs in July. Some analysts see that as a Goldilocks result, which would allow the Fed to resume rate cuts without sounding alarm bells.
"Data-wise, the U.S. looks resilient," said Shoki Omori, chief desk strategist at Mizuho Securities.
"If the U.S. economy is already operating above potential, that bump can translate into a slightly higher neutral rate of interest, which is supportive for front-end bond yields and therefore the U.S. dollar," he said.