The US dollar rose on Monday after US President Donald Trump threatened to impose new tariffs on metal imports, boosting demand for safe havens, while the euro fell.
The US Dollar Index, which tracks the greenback against a basket of six major currencies, rose 0.17% to 108.140.
Concerns about a potential global trade war increased on Monday after Trump announced he would impose a 25% tariff on all steel and aluminum imports into the US.
The US president also said he would impose retaliatory tariffs on the country's major trading partners.
Last week, Trump triggered the trade war by imposing tariffs on Mexico and Canada, then suspended them, but still imposed taxes on Chinese goods.
Meanwhile, China's retaliatory tariffs on US goods are expected to take effect in the coming trading session.
According to analysts at ING, "Uncertainty about the nature, timing and impact of these tariffs is expected to maintain support for the US dollar this week."
They added that any positive developments regarding the ceasefire between Russia and Ukraine could put pressure on the US dollar, but for now, investors are expected to maintain a large position in the currency. The Dollar Index (DXY) is expected to move in the 108-109 range throughout the week.
Investors will also be focusing on Wednesday’s US inflation data and Federal Reserve Chairman Jerome Powell’s speech.
In Europe, EUR/USD fell 0.1% to 1.0316, nearing its lowest level in more than two years, as investors worried about Trump’s repeated threats of tariffs on Europe.
According to ING, “If retaliatory tariffs are also imposed on the EU or major European countries, EUR/USD could fall as low as 1.0225. In addition, Wednesday’s US CPI report is another downside risk for the euro.”
Meanwhile, GBP/USD fell 0.1% to 1.2397, after the Bank of England cut interest rates by a quarter percentage point last week, with the pound also under pressure on concerns about new tariffs.
ING also said that market attention is likely to turn to the Bank of England's policy, especially after former rate-hiker Catherine Mann, who is now leaning towards rate cuts, is due to give a speech on the UK economy. If her speech signals more rate cuts are on the way, the pound could weaken further.
In Asia, the USD/JPY pair rose 0.6% to 152.37, after strengthening from its lowest level since early December.
Last week, the yen strengthened on strong wage growth and hawkish comments from the Bank of Japan (BOJ), which fueled speculation that more rate hikes were on the cards in the coming months.
The BOJ raised rates by 25 basis points in January, but weaker-than-expected current account data dampened sentiment on the yen.
Meanwhile, USD/CNY rose 0.3% to 7.3074, weighed down by the threat of additional tariffs as well as weaker-than-expected inflation data from China.
Latest data showed that China's consumer inflation (CPI) grew more slowly than expected, while the producer price index (PPI) continued to decline, signaling continued weakness in the Chinese economy.
