The US dollar weakened on Friday, on track for a sharp weekly loss after strong inflation data and President Donald Trump's decision to delay the implementation of retaliatory tariffs on major US trading partners.
The US Dollar Index, which tracks the greenback against a basket of six major currencies, fell 0.4% to 106.815, falling to a three-week low and is expected to decline around 1% this week.
President Trump ordered officials on Thursday to draw up plans for retaliatory tariffs against any country that imposes taxes on US imports, but did not immediately announce tariffs.
The decision raised hopes that there was still room for negotiations, weakening the dollar as traders had previously seen tariffs as a strengthening factor for the US currency.
"Markets had been expecting the Commerce Department to release a report on trade in April and tariffs to follow after that," ING analysts said in a note. “However, markets are also concerned that this week’s announcement of retaliatory tariffs will be a separate and more immediate step. Yesterday’s news, which was more in preparation for the April report, has provided some relief.”
The focus now shifts to a meeting of Western powers in Munich on Friday to discuss potential peace talks in Ukraine and terms acceptable to Kyiv, Moscow, the US and Europe.
The main US economic data due out on Friday is January retail sales figures, which are expected to be weak due to recent bad weather.
While this week’s inflation indicators were stronger than expected, they still failed to support the US dollar as the Federal Reserve has already signaled a cautious approach to any interest rate cuts.
In Europe, EUR/USD rose 0.2% to 1.0484, with the euro hitting a two-week high against the dollar, supported by optimism over the possibility of peace talks between Ukraine and Russia.
The latest eurozone growth estimates are due later, with GDP expected to remain flat in the final quarter of 2024, leaving annual growth at just 0.9%.
Data released on Friday showed German wholesale prices rose by 0.9% in January compared with the same period a year ago.
GBP/USD rose 0.3% to 1.2587, with the UK currency rising to its highest level since early January after data showed the British economy expanded unexpectedly in the final quarter of last year.
In Asia, USD/JPY fell 0.2% to 152.52, with the Japanese currency maintaining its strength on continued expectations of additional interest rate hikes by the Bank of Japan.
USD/CNY was little changed at 7.2898, although the pair had fallen from the 7.3 yuan level.
