The US dollar was close to a weekly low on Tuesday as markets awaited US economic data while assessing whether US President-elect Donald Trump's tariff policies would match his rhetoric.
Investors had previously anticipated a scenario in which widespread implementation of tariffs could boost US inflation, potentially limiting the Federal Reserve's ability to cut interest rates, thereby supporting a stronger US dollar.
Now, markets are wondering whether US officials are preparing to ease some of Trump's campaign promises, even as significant uncertainty still surrounds future policy.
Market focus now shifts to US JOLTS job openings data and the ISM Services index for December, which are due later.
The US dollar index, which measures the currency against the euro, sterling and four other currencies, fell 0.22% to 108.03, after falling as low as 107.74 yesterday, the lowest since December 30.
On January 2, the index hit a high of 109.58 for the first time since November 2022, largely driven by expectations that Trump’s promised fiscal stimulus, regulatory cuts and higher tariffs would boost U.S. growth.
The eurozone has been the main target of Trump’s tariff threats, and the euro rose 0.18% to $1.0409, after surging to a weekly high of $1.0437 on Monday.
Inflation in the 20 countries that share the euro strengthened to 2.4% last month from 2.2% in November, Eurostat said on Tuesday.
Meanwhile, an ECB survey showed eurozone households raised their inflation expectations in November.
Money markets expect the ECB’s deposit facility rate to be 2.1% in July, unchanged after the data, compared with 1.9% before Christmas. The deposit rate is now at 3%.
“The continued strength of services inflation means the ECB is likely to cut interest rates only gradually even as the economic outlook remains bleak,” said Jack Allen-Reynolds, deputy chief Eurozone economist at Capital Economics.
The U.S. dollar rose 0.04% to 157.69 yen, having previously hit a high of 158.425 yen for the first time since July 17, supported by higher U.S. Treasury yields.
The Canadian dollar rose 0.1% to 1.4315 against the greenback after Canadian Prime Minister Justin Trudeau announced on Monday that he would step down in the coming months.
