Dollar Steadies Amid Tariff Concerns and Fed Policy Focus

The U.S. dollar firmed on Monday as traders weighed the implications of President Donald Trump’s tariff plans. The dollar index stood at 107.6, near last week’s one-month low, after the greenback logged its weakest week since November 2023 due to easing tariff concerns. However, worries resurfaced as Trump announced sweeping measures against Colombia, including tariffs and sanctions, following the country’s refusal to accept U.S. deportation flights.

The Mexican peso, often seen as a tariff risk gauge, fell 0.8% to 20.426 per dollar. The Canadian dollar also weakened to $1.43715. Meanwhile, the euro dipped 0.14% to $1.0474 ahead of a European Central Bank meeting, where a rate cut is expected. Sterling traded at $1.24615.

Investor focus this week is on the Federal Reserve’s policy meeting, where rates are expected to remain unchanged. However, markets will watch for hints of a potential rate cut in March if inflation continues to trend toward the Fed’s 2% target. Trump has urged the Fed to cut rates to support growth.

The Japanese yen strengthened 0.4% to 155.41 per dollar after the Bank of Japan raised rates to their highest since 2008, signaling further hikes as inflation and wages rise. Analysts suggest the yen could appreciate further as interest rate gaps narrow.

Elsewhere, the Australian and New Zealand dollars remained near recent highs, although Australian markets were closed. Economic data from the U.S. showed mixed signals, with business activity slowing to a nine-month low while existing home sales hit a 10-month high.

The dollar’s trajectory remains tied to tariff developments and central bank policies, with the Fed’s stance playing a pivotal role in shaping market sentiment.