Dollar bounces on rise in yields as trade war roils markets

By Rae Wee

The global currency markets have been experiencing significant volatility due to escalating trade tensions and uncertainty surrounding U.S. economic policies. The recent threats of additional tariffs by President Donald Trump on European Union goods have further fueled fears of a global trade war.

On Thursday, the dollar saw a slight rebound against the yen, thanks to a rise in U.S. Treasury yields. However, the overall sentiment remains cautious as investors grapple with the potential impact of the trade war on U.S. inflation and growth.

The Japanese yen, considered a safe haven in times of economic uncertainty, saw a surge earlier in the week as fears of a U.S. economic downturn loomed. The dollar’s recovery against the yen to 148.31 on Thursday provided some relief to traders.

Similarly, the Swiss franc edged away from its recent three-month peak against the dollar, standing at 0.8817 per dollar. The release of data showing slightly lower than expected U.S. inflation in February offered temporary relief but did not fully capture the impact of Trump’s tariffs.

Market economist James Reilly highlighted the uncertainty surrounding future inflation and U.S. economic activity, driven by the unpredictability of U.S. trade policy. This uncertainty continues to influence market trends and decision-making processes.

U.S. Treasury yields rose as traders anticipated an increase in inflation levels, with the benchmark 10-year yield remaining steady near a one-week high at 4.3047%. This supported the dollar and pushed the euro lower to $1.0890.

In the midst of trade uncertainties, the Bank of Canada recently trimmed its key policy rate by 25 basis points, citing concerns about inflationary pressures and weaker growth. Central banks worldwide are closely monitoring the situation and remaining cautious in their monetary policy decisions.

Currency strategist Carol Kong emphasized the potential inflationary pressures posed by tariffs and the challenges central banks may face in addressing them. While central banks have the option to cut interest rates to stimulate growth, inflation concerns may limit their policy flexibility.

Overall, the currency markets remain sensitive to geopolitical developments and economic indicators. The Australian dollar and New Zealand dollar saw minor gains amidst the ongoing market fluctuations.

In conclusion, the global trade tensions and U.S. economic policies continue to drive uncertainty in the currency markets. Traders and investors are closely monitoring developments and adjusting their strategies accordingly to navigate the volatile landscape.

(Reporting by Rae Wee; Editing by Jamie Freed)