Resurgent Dollar Recovers Amidst Rate Hikes and Trade Tensions
Tuesday marked a day of renewed vigor for the U.S. dollar, following an arduous week. The resurgence was fueled by a surge in U.S. bond yields and the looming deadlines associated with Donald Trump’s proposed tariffs.
Greenback Gains Traction
At approximately 20:15 GMT, the greenback had appreciated by 0.38% against the euro, reaching 1.0445 dollars. The Dollar Index, which gauges the value of the U.S. dollar against a basket of major currencies, experienced a 0.88% increase to 107.51 points. This represented a notable recovery from Friday’s levels, which had not been witnessed since mid-December.
Escalating Bond Yields Prop Up Dollar
Analysts at Brown Brothers Harriman (BBH) attributed the dollar’s modest rebound to the rising U.S. Treasury yields. "The dollar has bounced modestly off its two-month low" as U.S. government bond yields have moved higher, they stated in a note.
Tuesday witnessed a significant surge in bond rates, with the yield on the 10-year U.S. Treasury note rising to 4.55% from 4.48% witnessed at the close of Friday. According to BBH experts, "the dollar will continue to be supported as the U.S. retains a large yield advantage versus all other major economies."
Marc Chandler of Bannockburn Global Forex viewed the rebound as a signal of "the end of the correction lower" in the U.S. currency. "From September into mid-January, the dollar appreciated, and then it’s been correcting until today. So I think this correction was overdue, and now it’s probably complete or close to complete," he explained to AFP. "The underlying trend is still dollar appreciation," he added.
Tariffs Loom Large
Currency traders remain keenly focused on the developments surrounding the tariffs proposed by President Trump. On Thursday, he announced a policy of "reciprocal tariffs" aimed at restoring "fairness" in trade relations between the United States and the rest of the world. On Friday, he indicated that he was considering imposing additional tariffs on imported vehicles, potentially around April 2.
These announcements came on top of the 25% tariffs on imported steel and aluminum into the United States, set to take effect on March 12 "with no exceptions or exemptions," as well as the tariffs targeting imports from Canada and Mexico, which have been paused for a month until early March.
As the end of the month approaches, bringing with it the critical deadlines for tariff action, "investors are considering their positions," said Marc Chandler. This "sword of Damocles" will "provide some support for the dollar."
Conclusion
The U.S. dollar has regained some momentum on Tuesday, bolstered by rising bond yields and the looming specter of trade tensions. As the month draws to a close, the dollar’s fate may hinge on the outcome of negotiations and the finalization of tariff policies. However, analysts believe that the underlying trend of dollar appreciation remains intact, with the currency likely to continue gaining strength in the months to come.
