The US dollar edged up from an 11-week low on Wednesday, as US Treasury yields rebounded from recent declines amid weak economic data and uncertainty over the implementation of tariffs.
On Tuesday, signs of a slowdown in the US economy and concerns about the impact of US policies prompted investors to seek safety in bonds.
US Treasury Secretary Scott Bessent said on Wednesday that the economy is actually more fragile than economic metrics suggest, citing volatile interest rates, unmanageable inflation and government-dependent job growth. He added that tariffs are an important source of revenue.
The US dollar index, which measures the currency against six other major currencies, rose 0.30% to 106.56, up from this week's low of 106.12, which was also the weakest level since Dec. 10.
“Tariff headlines, rather than the tariffs themselves, increase policy uncertainty, which can hold back business activity and cause disinflationary pressures,” said Thierry Wizman, global forex and interest rate strategist at Macquarie.
The yield on 2-year U.S. Treasury bonds fell as low as 4.074% on Tuesday, the lowest since Nov. 1, but rose 3 basis points (bps) to 4.125% on Wednesday in London trading.
Money markets are now pricing in a 54-bps rate cut by the Federal Reserve by the end of the year, implying two 25-bps cuts and about a 20% chance of additional cuts.
The euro fell 0.25% to $1.0488 after hitting $1.0528 on Monday, its highest since Jan. 27.
ECB board member Isabel Schnabel said it was no longer clear whether the current rate of 2.75% was really holding back the economy. Policymakers are debating how far rates should be cut while inflation remains slightly elevated.
Investors are also closely watching the peace talks in Ukraine, which could affect the eurozone economy and the single currency.
The Kremlin said preparations were underway for expert-level talks between Russia and the United States.
Meanwhile, Ukraine and the United States have prepared a final version of an agreement on Ukraine's natural resources, Ukrainian Prime Minister Denys Shmyhal said.
European currencies saw the Ukraine-U.S. natural resources deal as a step "towards U.S. security guarantees for Ukraine," said Chris Turner, chief forex strategist at ING.
The Canadian dollar fell to a two-week low, while the Mexican peso was little changed ahead of a possible new round of U.S. tariffs.
Trump said on Monday that duties on Canada and Mexico would go ahead as scheduled, expected to begin on March 4.
However, Mexican President Claudia Sheinbaum said on Tuesday that she expected to reach an agreement that could avert a trade war with the United States.
Canadian Minister Francois-Philippe Champagne told reporters that talks to convince Trump that Canada had taken sufficient steps to address U.S. concerns about border security would continue.
The U.S. dollar rose to C$1.4348, its highest since Feb. 12. It fell 0.1% to 20.4443 Mexican pesos.
The U.S. currency rose 0.35% to 149.54 yen, up from Tuesday's low of 148.56 yen, its weakest since Oct. 11.
Bitcoin, the largest cryptocurrency by market capitalization, was little changed at $88,242, after plunging 5.6% on Tuesday to hit its lowest since mid-November at $86,003.11.
