The U.S. dollar regained strength on Tuesday after hitting its lowest level in over two months at the start of the week. This recovery was driven by safe-haven flows following U.S. President Donald Trump’s reaffirmation that tariffs on Mexico and Canada will proceed as planned.
The stronger dollar pressured the euro, which retreated from a one-month high to trade at $1.0461. Further movements in the euro are expected to depend on how swiftly Germany forms a coalition government after the recent conservative victory in national elections.
On Monday, Trump reiterated that tariffs on Canadian and Mexican imports remain “on time and on schedule,” despite efforts by both countries to enhance border security and curb the flow of fentanyl into the U.S. ahead of the March 4 deadline.
Market participants had hoped for a delay in the tariffs, which are set to impact over $918 billion worth of U.S. imports, spanning industries from automotive to energy. However, Trump’s firm stance triggered a flight to safe-haven assets such as gold and U.S. Treasuries, with the dollar benefiting from the shift in risk sentiment.
Market Reactions
- British Pound (GBP): Sterling edged lower, trading 0.06% down at $1.2618 after reaching a two-month high on Monday.
- Australian Dollar (AUD): The Aussie slipped 0.17% to $0.6339.
- New Zealand Dollar (NZD): The Kiwi weakened 0.13% to $0.5725.
- Dollar Index: The U.S. dollar index steadied at 106.75, bouncing back from a two-month low of 106.12 reached in the prior session.
Although the dollar has declined roughly 3% from its January peak due to weaker-than-expected U.S. economic data, its losses have remained limited. The uncertainty surrounding tariffs has continued to support the greenback.
Ray Attrill, Head of FX Strategy at National Australia Bank, noted:
“Recent economic data suggests the U.S. is losing its economic edge, but whenever risk sentiment deteriorates in equity markets, the dollar sees renewed safe-haven support. As the tariff deadlines approach, a major shift in risk appetite seems unlikely, keeping defensive demand for the dollar intact.”
Yen and Treasury Yields
Elsewhere, the dollar climbed 0.35% against the Japanese yen, reaching 150.22, recovering from its weakest level against the yen since early December. The recent drop in U.S. Treasury yields, especially in real terms, has weighed on the dollar, while rising Japanese bond yields—driven by speculation of another Bank of Japan rate hike—have strengthened the yen.
As global markets navigate uncertainty around trade policies and economic growth, the U.S. dollar remains a key focus for investors seeking stability in volatile conditions.