SINGAPORE (Reuters) – The U.S. dollar made a modest recovery on Thursday, bolstered by rising U.S. Treasury yields, though currency markets remained confined to narrow ranges as investors wrestled with the uncertain impact of an intensifying global trade war on U.S. inflation and economic growth.
U.S. President Donald Trump threatened further tariffs on European Union goods on Wednesday, sparking retaliation from major U.S. trading partners. This renewed escalation in trade tensions, combined with concerns over a potential U.S. recession, has caused significant volatility in global markets, leaving traders in a state of flux as they navigate the uncertainty surrounding Trump’s shifting trade policies.
Thursday’s early Asian session saw some calm as investors were momentarily freed from the barrage of trade-related headlines coming from the U.S.
The dollar rose 0.05% against the yen to 148.31, recovering from a five-month low hit earlier in the week when fears of an economic slowdown in the U.S. prompted investors to seek refuge in the Japanese yen. Similarly, the Swiss franc retreated from a three-month high set on Monday, trading at 0.8817 per dollar.
Data released on Wednesday showed U.S. inflation for February rose slightly less than expected. However, the relief provided by the data could prove short-lived, as it did not fully account for the impact of Trump’s tariffs on consumer prices.
“The real uncertainty lies in the future trajectory of inflation and the broader U.S. economic outlook, which remains heavily influenced by the volatility of U.S. trade policy,” said James Reilly, senior markets economist at Capital Economics. “The data did little to shed light on either issue.”
Meanwhile, U.S. Treasury yields climbed as traders bet that inflation could rise in the future due to ongoing trade disruptions. The 10-year Treasury yield held steady near a one-week high at 4.3047%, while the two-year yield remained largely unchanged at 3.9866%. These movements helped support the dollar, which edged the euro down from Tuesday’s five-month high. The euro last traded at $1.0890.
The British pound gained 0.06% to $1.2968, while the dollar index strengthened to 103.57, recovering from its five-month low on Tuesday.
The Canadian dollar saw little movement at C$1.4372, as the Bank of Canada lowered its key policy rate by 25 basis points on Wednesday. The central bank expressed concerns about inflationary pressures and weaker growth, both of which were exacerbated by the uncertainty surrounding Trump’s tariffs.
“Tariffs are putting upward pressure on global inflation, which poses a major challenge for central banks,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “While central banks may lower interest rates to counteract the negative effects on growth, inflation concerns could ultimately limit their room for monetary policy maneuvering.”
Elsewhere, the Australian dollar gained 0.07% to $0.6326, while the New Zealand dollar rose 0.13% to $0.5738.
As global trade tensions continue to simmer, markets are closely watching the interplay between U.S. monetary policy, inflation data, and the ongoing fallout from the escalating trade war.
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