The U.S. dollar steadied near a three-week low on Friday, buoyed by hopes of delayed trade tensions after President Donald Trump refrained from immediate reciprocal tariffs. Trump ordered his team to draft plans for tariffs on countries taxing U.S. imports but indicated a lengthy review, leaving room for negotiations. This tempered market concerns, supporting sentiment.
The dollar, which surged 7% last year on tariff fears, has weakened due to delayed or softened tariffs on Mexico, Canada, and China. Meanwhile, the euro rose to a two-week high of $1.04823, driven by optimism over potential Ukraine-Russia peace talks. Sterling climbed 0.18% to $1.2591, marking its strongest level since early January, bolstered by positive UK economic data.
Thursday's U.S. producer price index (PPI) showed a decline in energy costs, easing inflation concerns after a hot consumer price index (CPI) report. This helped steady market confidence, with traders now pricing in 33 basis points of Federal Reserve rate cuts for 2025, up from 29 basis points but down from 37 before the CPI data.
The Japanese yen, steady at 152.775, regained most losses after Wednesday's dip to 154.80, benefiting from lower U.S. Treasury yields and speculation of a Bank of Japan rate hike. The yen has gained nearly 3% in 2025.
Traders remain cautious, with uncertainty over the U.S. economic outlook and potential disinflation stalls due to Trump's tariff policies. U.S. retail sales data for January, expected later Friday, may further guide market sentiment. The Federal Reserve is likely to remain watchful, balancing inflation concerns with global trade impacts.
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